On Tuesday, the safe-haven dollar recovered some of its overnight losses, while the yen rose as U.S. stock futures fell after Snapchat issued a profit warning, dampening the atmosphere after Wall Street’s good start to the week. The dollar index, which compares the greenback to six major currencies, rose 0.1 percent to 102.24, bouncing back after a 0.85 percent drop on Monday that pushed it further away from the nearly two-decade high above 105 reached in mid-month. The dollar, on the other hand, fell 0.2 percent against the most important haven currency, the yen, to 127.655 yen. The S&P 500 was down 0.92 percent and the Nasdaq was down 1.53 percent at the start of trading, tarnishing a solid day on Monday when the indexes were up 1.86 percent and 1.68 percent, respectively.

“The U.S. dollar is carving out a peak and the commodity currencies like the Aussie are carving out a bottom, but it’s going to be bumpy.” The risk-sensitive Aussie dollar sank 0.41% to $0.70815, while New Zealand’s kiwi slid 0.46% to $0.6438, a day before the Reserve Bank of New Zealand is widely expected to raise the key rate by half a point. The Antipodean currencies rallied 0.83% and 0.91% respectively on Monday. Westpac predicts the kiwi could top $0.69 by year-end, on a rally fuelled by both a climb-down in Fed tightening expectations and optimism about a China reopening.

Despite the respite on Tuesday, the U.S. currency has been falling broadly alongside a decline in Treasury yields from multi-year peaks, with aggressive easing by the Federal Reserve already priced in. Meanwhile, positive signs for the global economy such as Shanghai’s expected emergence from weeks of crippling COVID-19 lockdowns and U.S. President Joe Biden’s comments this week about a possible easing of the trade war with China have lifted sentiment at the dollar’s expense. The release of global manufacturing PMIs throughout Tuesday will be another key focus for currency traders. “If the data is good, that should continue the trend of an easing dollar as the global economy recovers from various shocks,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

“It’s too early to conclude Fed pricing will not rise again, given officials emphasize front-loading of the cycle, so that a final burst of USD strength is possible over the next month or two,” Westpac strategist Imre Speizer wrote in a client note. “But beyond that, we expect USD strength to fade.” The euro retreated 0.22% to $1.0667, although barely denting the 1.17% surge from Monday when European Central Bank President Christine Lagarde said policymakers were likely to lift the euro area deposit rate out of the negative territory by the end of September.

News Summary:

• FOREX-Dollar rises as Snapchat dampens sentiment; Australian and New Zealand currencies fall
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