USD: Conditions for a Data-led Correction are Ripe - ING
Research Team at ING, suggests that a stagflationary US labour market
report (ie, softer activity, rising inflationary pressures) is unlikely
to spur much global risk-on sentiment in the near-term.
Key Quotes
“Given
that it tentatively corroborates (i) a slowdown in US activity and (ii)
a Fed that might potentially be behind the curve. Indeed, this has been
the initial reaction in FX markets, with the risk- and rate-sensitive
NZD and AUD taking the biggest hit against the dollar. With much of the
necessary USD correction (from a financial conditions perspective)
having now occurred, we think the conditions for a data-led USD
correction are ripe.
So long as inflationary pressures continue
to firm, signs of more resilient 2Q US activity is now the missing piece
for the USD to retrace some of its recent (and slightly excessive)
losses. In the near-term, risk currencies are likely to continue trading
softer against the dollar in a fragile risk backdrop; our preference is
to sell NZD and CAD against the USD, with both currencies having
overshot fundamentals at current levels.”
