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The US dollar has rebounded as anticipated and is approaching our resistance level of 102.31. This recovery was supported by an oversold condition and steady PCE figures at 2.5% year-over-year. Additionally, the GDP showed a 3% increase, surpassing the previous quarter’s revised figure of 1.4%.
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The basis of whether is a 25bps or 50bps cut will be depending on how the unemployment rate this coming Friday, should it crosses above 4.4%, the likelihood of a increased rate cut to 50bps will be higher. However, we are align with the consensus of a 25bps cut as NFP may performed than expected based on consensus view.
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GBPUSD, EURUSD, AUDUSD saw decline as dollar was boosted. USDCAD is the winner this week.
PCE numbers maintained its inflation outlook as positive for rate cut, US GDP boosted at 3%.
US Dollar Index (DXY), continued to gain following the release of July’s Personal Consumption Expenditures (PCE) Index, which indicated that inflation remains under control. With inflation easing and stable economic activity, the scenario supports the possibility of interest rate cuts by the Federal Reserve (Fed), with the chairman already hinting at a cut in September. However, the PCE data might not have been dovish enough to convince the Fed to begin with a 50-basis-point cut. The PCE Price Index, the Fed’s preferred measure of inflation, held steady at 2.5% year-over-year in July, slightly below market expectations of 2.6%. Similarly, the Core PCE Price Index, which excludes food and energy, remained unchanged from June at 2.6%, also below the forecasted 2.7%. These figures indicate that inflation is decreasing, but the pace of rate cuts will likely depend on upcoming labor market data. The CME FedWatch tool now shows a nearly 30% probability of a 50-basis-point rate cut in September, a slight decrease. Given how the Fed works in the past and how ‘Overly cautious’ they are, the likelihood of 50bps cut is low and as such, the dollar may see slight strength targeting 102.32.
Australia dollar may see slight weakness should Chinese Manufacturing PMI comes in weaker
The Aussie dollar has been defending its ground especially after the US dollar sees a boost last week. Further strength in the Aussie dollar can be attributed to its hawkishness on its interest rate policy, especially after the CPI came out at 3.5%. Though lower than previous month YoY, the RBA is unlikely to reverse course until end of this year.
However, weaker than expected Chinese Manufacturing PMI may kick the Aussie dollar to weakness. All eyes will be on 0.6600 support region. We maintain our outlook on the Aussie with long-term target at 0.7100.
Technical outlook on Dollar index –Corrective rebound may edge higher towards 102.32
The dollar index rebounded as expected from based on our last week’s report dated 26 Aug 2024 and the momentum is stronger than expected and hence, there is a possibility of the Dollar index breaking above 102.32 resistance and target 103.00. Major support remain at 98.45-99.56.
Technical outlook on AUDUSD – Failure to break 0.6800
The Aussie dollar fails to break above 0.6800 resistance and has rejects the resistance level with a strong bearish bar last Friday, hence the Aussie may correct slightly and find support at 0.6600-0.6622 level and rebound. Below are the key pointers:
- Ichimoku remain in the positive trend reading after prices trends above all its’ indicator.
- Long-term MACD is in an early bullish sentiment.
- The stochastic oscillator continue to rise.
Continue to hold on to buy for AUDUSD and watch for a rebound at 0.6600-0.6622 region. Long-term target price is at 0.7100.
Technical outlook on USD/CAD – Dollar strength is non-existent against the Lonnie
The USD/CAD fails to garner the strength as compared to the sterling, euro and the Aussie. As such, we believe that the Canadian dollar may see strength in the mid-term. Upside correction towards 1.3565-1.3612 is likely before embarking on a downside correction. Major support is at 1.3266.
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