USD: Too early to declare that the bear trend has resumed - ING

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, notes that, despite the fact that they are dollar bears in 2021 and are eager to see signs that the bear trend has restarted after a tricky first quarter, it seems too early to conclude that it’s time to sell the dollar.

"Yes, the market has dialled back some of the pressure on the Federal Reserve to tighten early (US 5-year yields softening and April 23 Fed Funds futures rallying 10 ticks), but that pressure looks set to return. One only has to look at China’s March producer price index of 4.4% YoY to see the wave of forthcoming inflation in 2Q and an uncomfortable quarter for Fed communications. Here our bond strategy team are convinced we have not seen the top in US 10-year yields."

"Events have not helped the environment in emerging markets, where Brazil, in particular, is battling with Covid-19, Turkey’s monetary policy is under scrutiny and tensions in eastern Ukraine, and the prospect of fresh sanctions hangs over Russia. Indeed, portfolio flows into emerging markets have stalled since late February. Continued patience may therefore be required for the global story that will attract funds out of the USD. DXY can easily correct back to 92.50/70."

"Elsewhere today, Canada’s March jobs figures may come in on the strong side in line with last week’s US non-farm payrolls. However, any help to CAD should be short-lived as the recent rise in Covid-19 cases in Canada and the relatively slow vaccination roll out may leave CAD underperforming the rest of G10 pro-cyclical currencies."