Current softer tone of the USD is viewed as corrective – Rabobank

The USD has lost ground against all other G10 currencies with the exception of the JPY since the start of the month. Economists at Rabobank consider the move to be corrective in nature given the recent run up in long USD positions. This next round of G10 central bank policy meetings will be crucial in injecting more clarity into the outlook for G10 currencies.

Next round of central bank meetings to be crucial to inject more clarity 

“We view the current softer tone of the USD as corrective. CFTC data show that speculators’ added to their long USD index positions for an eighth consecutive week last week and that these positions are holding at their highest levels since October 2019. After such a sharp change in allocation of positions, some pullback or consolidation is not exceptional and should allow market participants to catch their breath.”

“The recent ‘catch-up’ moves in the money market rates of other countries has contributed to the stronger tone of other G10 currencies vs the USD. In many cases, however, it is likely that movements in the short end of several curves are overdone.”

“A reiteration of cautious positions from central banks such as the ECB, BoJ, SNB, RBA and the Riksbank is likely to settle markets and should allow the USD to pull back some ground.”

“We retain our view that difficult conditions for emerging markets caused by concerns such as higher US rates, slowing Chinese growth and rising energy prices remains a USD positive dynamic.”