The US dollar bounced on Monday but the small rebound could be a tell on where the market is going. The Swiss franc was the top performer while the Australian dollar lagged. The week ahead will offer clues on who might follow the BOC with a rate hike.
Every currency has a bad day at times. Even in the less-volatile era of 2017, currencies are beaten up. When those days come – like they did for the US dollar on Friday – how the currency recovers is often more telling then the bad day itself.
The US dollar was broadly higher in light trading Monday but the gains were small compared to Friday's thrashing. It edged up about 30 pips across the board and a bit more against CAD and GBP, but those were the two that made the most headway last week. GBP traders await this week's CPI (Tuesday) and retail sales (Wednesday) figures for more clues on Super Thursday's BoE meeting and Inflation Report.
So the dollar-bounce was modest at best. What does that mean? It shows there is little enthusiasm to own dollars and few dip buyers waiting in the wings. But it's not all bad news. At times on Friday the dollar looked like it could crumble. Even when soft Empire Fed data hit on Monday the dollar held its ground.
That means that while the dollar is likely to continue to fall – especially with the lack of data on the calendar – the path won't be in a straight line.
One spot where the dollar is showing more life is against the yen. The stall at 114.50 this month and retracement to 112.50 looks far from fatal and underscores the theme that everyone-is-tightening but the BOJ.
So who will be next to act? We will begin to get some clues with New Zealand reporting on Q2 CPI the July RBA meeting minutes. Any hints or reasons to raise rates are significant at the moment and the market will be much quicker to react than it was when the BOC signaled higher rates.