Yesterday’s news that US House Speaker Nancy Pelosi is planning to visit Taiwan this week – she’s reportedly due to land tonight – has prompted a reaction by Chinese authorities who threatened unspecified military action. Should this mark a material deterioration in US-China relationships, expect some shockwaves to be felt across the FX market. The dollar, the yen (which may break below 130.00 already today) and CHF should be the main beneficiaries, while CNY and China-sensitive currencies (along with high-beta currencies in general) could come under pressure. Here, AUD and NZD appear mostly vulnerable in G10.
It is hard to predict how this new geopolitical thread will develop, and for now we simply highlight that this may be the trigger for an upside correction in the dollar today or in the coming days.
Back to the US, the first piece of labour data this week ahead of Friday’s Nonfarm Payrolls will be today’s JOLTS job openings for June, although the market impact should be contained. More focus should instead be on Fed speakers, as Charles Evans (dove), Loretta Mester (hawk) and James Bullard (arch-hawk) are all due to speak. The switch to a meeting-by-meeting approach by the FOMC should increase the relevance of policy comments by members, and given we’ll hear from two hawks and one dove, the overall message today may support rate expectations and the dollar. Our base case for today is that DXY will be able to stage a rebound to the 105.50-106.00 area
- ING FX Strategy
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