The Washington political train wreck and month end flow has left the US dollar teetering on the brink of a cliff. After struggling through a torturous time last week, and just when it appeared the USD onslaught had abated, the dollar bulls were swallowed up by the expanding “DMV” political sinkhole.And while month end portfolio flows were not as unruly as they can usually be, USD sellers were coming out of the woodwork and could be found in every corner of the market.
However, we are entering a data-laden week for the USD, and we should expect this to come into trading decisions.With currencies trading at multi year highs will acrophobia set in before US payrolls? Since a good portion of the overnight dollar swoon was inspired on the back of month end portfolio adjustment, it's difficult to envision more dollar selling ahead of the US economic data.
But the troublesome political headlines continue to weigh on sentiment, and while the removal of a White House communications is hardly market moving fodder, it does point to growing instability in the Trump administration where Senior White House official continue to have very short shelf lives. Add in the US government's diplomatic fracas with Russia and the confusing narrative over North Korea, political tensions in Washington remain on a rolling boil.
The RBA rate decision is the primary regional focus today. Last week Governor Lowe and Deputy Governor Debelle leaned against the view that interest rates in Australia will track other G-10 central bankers policy normalisation. However, the post rate decision statement does not offer this latitude and given the economic pick up in Australia it's highly unlikely the RBA will downgrade their economic assessment and move off their neutral policy stance.
Expect a range trade day in APAC as the market awaits PMI data across Europe and the US PCE prints. But we should expect the market is to lighten up long EUR positions at current levels given the month and USD selling influence but maintain a stronger EURO bias while in buying the dip mode.
USDJPY continues to trade heavy on the back of a weaker dollar. With North Korea and shambolic US administration headlines filling the airwaves, topside moves will be limited.
Wait and see mode ahead of the RBA policy decision but it remains a US dollar story line on the back of a dovish Fed outlook.