PMIs cause consternation for USD bulls
The big move to position long USD in May was driven in large part by a view that US activity was beginning to decouple in a favourable way from other major and EM economies. It was anticipated that this process would ultimately move monetary policy settings, rate differentials and net capital flows in the dollar’s favour. This view may well be borne out over time, but the consensus was rattled by Monday’s manufacturing PMI releases, which saw upside surprises reported for China and across Europe, while the US ISM PMI fell sharply. The US number missed consensus by two full points and fell to its worst levels since 2009, nearly reconverging with the Euro area measure for the first time since 2011 (see chart). We think USD long positions are likely to remain under pressure heading into Friday’s jobs report, and the employment number will likely need to beat the 165k consensus significantly to revive USD upside momentum. In the meantime, Tuesday’s April trade data is expected to show a rewidening in the monthly deficit back to $42.5bn, well within recent ranges. We expect the USD to regain ground vs. the JPY and CHF in the weeks ahead, but we remain wary of running long USD positions vs. the EUR and commodity bloc currencies and think near-term risks are to the AUDUSD upside.
Read full report: FX Daily
BNP Paribas