Imre Speizer, Research Analyst at Westpac, explains that with the USD shedding some back-end yield spread support and the US curve still flattening, the net takeaway is modestly USD negative.

Key Quotes

“This week’s data calendar is light, with only new and existing home sales to watch. Fedspeak takes centre stage, with Fischer, Dudley, Evans, Rosengren, Kaplan, Bullard and Mester on the rostrum.”

“May CPI inflation was indisputably soft, the 0.1% rise flattered by rounding (0.063% unrounded) and weakness broadbased. The 3mth annualised core CPI is a paltry 0.0%, down from 3.0% in Feb. Chair Yellen won’t have any of it though, seeing weakness as transitory and expressing confidence that the Philips curve will lift inflation.”

“Markets are calling Yellen’s bluff. Despite her “full steam ahead” message the Fed Funds and OIS curve are overall net flatter in the wake of last week’s FOMC. 10yr yields tell the same story.”

“3 months ahead: The USD will struggle to make much headway. Growth and inflation do not warrant a hawkish Fed, Republican consensus on tax cuts and infrastructure is still absent, and Russia-gate will slow the Republicans’ agenda and a debt ceiling showdown is on the horizon.”

“By year end though, if these risks dissipate, the US dollar should resume the trend rise witnessed in 2016.”



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