USD: a pause on the way up?

Fed speakers, Dudley and Lacker, came out overnight and continued the drumbeat of warnings about the potential for a June rate hike.

Source: Bloomberg

However, market pricing for a June/July rate hike was trimmed slightly and the DXY dollar index pulled back from its intra-session highs. US regional manufacturing surveys have not been toeing the upbeat line proffered by the Fed with the Empire and Philly Fed surveys both showing contractions in May. Despite these intimations by the Fed, the market continues to remain skeptical over the likelihood of rate hike in June or July. Nonetheless, rate hike concerns have continued to weigh on the equity markets and risk off sentiment looks set to dominate the open in Asia.

The DXY Dollar index has risen 2.9% since the start of May. Overnight, the DXY rallied up to $95.6, but has since pulled back to $95.3. It may be ready for a bit of a pause at these levels while the market waits to see if US data will hold up enough for the Fed.

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Although commodities were clear winners from the intraday retracement in the US dollar. WTI sold off sharply yesterday, but managed to recover most of these gains late in the session to close relatively flat. Gold has felt the US dollar rally far more sharply than most commodities and lost another 0.3% overnight. A close below US$1240 would be a strong signal that gold’s massive rally in 2016 may be coming to an end.

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The ASX is heading for a flattish open, which, given the general selloff in markets globally, is quite positive. CBA’s ADR closed up 0.2% in the overnight session, while BHP’s closed the session relatively flat. If we continue to see steady buying in financials and the materials and energy sectors hold up, the ASX could finish the final session for the week in positive territory. Although this looks unlikely to help Aconex (ACX) today, which has been seeing consistent selling in the stock since 11 May. ACX’s declines may soon start triggering a lot of stop losses from investors who bought in as the stock rallied from February, and this could really accelerate its downside moves.

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