Dollar Bounce Continues Ahead of FOMC Minutes

Blue arrows pointing up marc

  • The dollar is building on yesterday’s Dudley-related bounce 
  • The FOMC minutes from last month’s meeting will be released  
  • The UK reported firm labor market data  
  • New Zealand reported Q2 employment data overnight 
  • South Africa reports June retail sales

The dollar is broadly stronger against the majors. The Swedish krona and the euro are outperforming while the Antipodeans are underperforming. EM currencies are broadly weaker. PHP is outperforming while KRW and MYR are underperforming. MSCI Asia Pacific was down 0.1%, even with the Nikkei rising 0.9%. MSCI EM is down 0.8%, with Chinese markets falling 0.2%. Euro Stoxx 600 is down 0.2% near midday, while S&P futures are pointing to a lower open. The 10-year UST yield is up 1 bp at 1.58%. Commodity prices are mostly lower, with oil down nearly 1%, copper down over 1%, and gold down 0.2%.

Comments from NY Fed’s Dudley yesterday helped the dollar get some traction. Dudley warned that the Fed was edging closer to a rate hike, and that a September move was possible. While nothing new, the remarks caught a market that was positioned quite one-sided and so a short-covering bounce followed and continues today. The Fed’s Bullard speaks later today.

The FOMC minutes from last month’s meeting will be released. The minutes give a broad impression of views and concerns. Voters and non-voters are treated equally. The Governors and regional Presidents are indistinguishable. Yet, time after time, policy is shown to emanate from the Fed’s leadership. This may make NY Fed Dudley’s press briefing tomorrow, which will include Q&A, more revealing than the minutes themselves. We expect Dudley to take a similar tone to his comments Tuesday. We expect the dollar to remain firm going into Dudley’s appearance tomorrow.

The UK reported firm labor market data. The June unemployment rate was steady at 4.9% and earnings ticked up to 2.4% y/y, both as expected. July jobless claims fell -8.6k vs +9k expected. While this is the first real sector data point that captures the impact of the Brexit vote, readings simply don’t show much impact yet. Inflation readings reported yesterday were muted. The next BOE meeting is September 15, and the lack of much new economic information should keep it on hold then.

New Zealand reported Q2 employment data overnight. The unemployment rate came in at 5.1% vs. 5.3% expected, while Q1 was revised down to 5.2% from 5.7% previously. Employment rose 4.5% y/y vs. 2.3% expected, while the participation rate rose to 69.7% vs. 68.8% expected. It’s worth noting that the statistics agency changed its methodology and began including defense personnel, so historical comparisons will be skewed. There are two more RBNZ policy meetings this year, September 22 and November 10. No cut is expected next month, though a handful of analysts look for another 25 bp cut. Rather, the majority of analysts look for a November cut.

South Africa reports June retail sales, which are expected to rise 3.9% y/y vs. 4.5% in May. The economy remains soft, and so we think the SARB is likely on hold for the rest of the year. A lot of this depends on the rand, but recent firmness should help limit price pressures in the months ahead. As such, the SARB should be able to stay on hold at its next meeting September 22.