Dudley’s interview sparked a reversal for under pressure USD - Westpac

Sean Callow, Research Analyst at Westpac, notes that the US dollar remained under pressure into the NY morning yesterday, where it saw buying on NY Fed president Dudley’s warning that markets are too complacent about rate hike risks.

Key Quotes

“Dudley told Fox Business that he expected stronger growth in H2 than in H1 and further improvement in the labour market. As such, ““the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so.” Atlanta Fed president Lockhart said “If the meeting were today I think the economic data stream would justify a serious discussion of a rate increase.”

US CPI was flat in July, as expected, but ex-food and energy it was slightly disappointing at 0.1% vs 0.2% expected. The y/y headline rate is at 0.8%, the core measure at 2.2%. Housing starts rose 2.1% in July (vs -0.8% expected), but building permits fell 0.1% (vs +0.6% expected).

This set of data left USD under pressure before Dudley’s interview sparked a reversal. The wave of USD selling had driven AUD/USD up more than 80 pips from its Sydney lows, reaching a high of 0.7749 after CPI. The Aussie then slid to around 0.7675 before edging back to 0.7700 for much of the NY afternoon.”