Week Ahead 

This week's data docket is relatively light, with the bulk of the releases focused on the housing sector. The street will also get a break from Fedspeak this week as monetary policymakers will be in their communications blackout ahead of next Wednesday's FOMC meeting. Recall that at last week's Humphrey-Hawkins testimony, Chair Powell indicated that Fed officials would likely discuss tapering details. And depending on how candid the FOMC taper signalling is, it could force the market to reprice that probability at the September 22 meeting. A sooner than expected taper will bring forward with it rate hike expectations, bullish for the dollar and bearish for gold and other rate-sensitive and long duration assets. 

Last week's FX look back

The first half of the week focused on US CPI after another substantial jump in used car prices led to a sharp increase in the June headline and triggered USD demand across the board. But the buying cooled off after Fed Chair Powell testified to the House Panel & Senate where he essentially held the dovish line that meeting the 'substantial progress' test for tapering was still "ways off" and reiterated inflation is "transitory" slowed but didn't quash USD rally and selling emerged. On the whole, FX markets have traded narrow ranges – it's pretty clear that the USD continues to be frustrating to anyone who is looking for a clear trend at the moment.

NZD – NZD has been in focus this week as a strong CPI beat (3.3% year-on-year, a 10-year high) reinforced expectations for an August hike (currently 75% priced) following a hawkish RBNZ this week. There are concerns around how New Zealand & Australia's zero covid programmes will affect them domestically as other economies take off, and both lag in their vaccine programmes. 

NZ CPI surprised the topside, and price action got very messy over the print, taking NZDUSD to an overnight high of 0.7050 and the AUDNZD cross down to 1.0576. The sense of urgency for the RBNZ has undoubtedly increased, and a hike in August could well be on the cards. 

CAD – The BoC failed to deliver on hawkish expectations this week but did confirm QE would slow to 2bln CAD from 3bln a week. Despite the QE announcement, the market took the overall message as dovish, and both macros/RM have been better USDCAD buyers following.

GBP – Sentiment has generally been GBP positive after a significant upside surprise in CPI (2% year-on-year) was followed by further hawkish comments from both the BoE's Ramsden & Saunders on tightening monetary policy sooner rather than later.

IMM Commitment of Traders

The IMM Commitment of Traders report (data as of July 13) showed speculative USD positioning turning just barely long, for only the fourth time since the start of 2020, in a progression of further USD buying since the June FOMC meeting. Indeed this suggests investor sentiment on the dollar is stronger now than it was in late Mar/early April when USD was higher on some indices. GBP, CHF and CAD saw the brunt of selling pressure, with EUR and AUD less heavily sold. By contrast, investors bought JPY and NZD, reducing JPY shorts and raising NZD length. EUR length falling to 9% of open interest is now below April 2021 low and is the weakest since March 2020.