USD index should retest recent lows near 92-93 - Westpac

Richard Franulovich, Chief Currency Strategist at Westpac, suggests that the July retail sales the main release in an otherwise typically spartan post-payrolls US calendar.

Key Quotes

“Known decent auto sales flag a decent enough headline. The ex-autos/gas measure may be more subdued though - the 3m avg pace here is +0.5%, as strong as it typically gets over the last 2yrs before a correction sets in.

Bias:

• Recent Fedspeak has a “stiff upper lip” quality to it but to our mind the very soft 1.2% Q2 GDP deals a nearly fatal blow to Sep hike odds. Yet markets still price in 20% chance of a hike.

• Admittedly Q3 US GDP could print 3%+ as the steep inventory rundown turns course but that will come too late (28 Oct) to make a case for a 21 Sep FOMC hike. Instead, Fedspeak will remain hopeful but nagging doubts should persist around persistently slow GDP growth (3qtrs averaging 1%) and continued weak business investment. Certainly Chair Yellen seems unlikely to upset markets when she speaks at Jackson Hole 26 Aug.

• USD index should retest recent lows near 92-93 but we wouldn’t get too carried away beyond that – the Fed is unlikely to completely take hikes off the table.”