USD takes a back seat - ING

DXY has found a little support ahead of tomorrow’s Fed rate meeting where analysts at ING are looking for a neutral hike which could generate a modest (5bp) rise in the US rate curve, but probably do little for the likes of EUR/$.

Key Quotes

“There’s little in the US data calendar today and instead developments in Canada are worth mentioning. Exactly one month ahead of July’s BoC rate meeting and Monetary Policy report, Dep. Gov Wilkins yesterday gave a series of speeches, outlining a more confident assessment of Canada’s economy and suggesting that a potential withdrawal of stimulus will be discussed.”

“The market took this as an expectations management exercise, with 2 year sovereign bond yields rising 10bp and CAD rallying over 1%.  The market still only prices a 50% chance of a rate hike by year-end, warning this move could continue. It also begs the question whether Norges Bank will do something similar at its June 22nd meeting – i.e. acknowledge that capex impact of the 2014/15 crude sell-off has worked its way through the economy and decide it is time to deliver a more upbeat assessment. While oil could have another leg lower tomorrow if crude inventories do not decline & the IEA most likely projects large non-OPEC supply for 2018, we see value in selling $/NOK in the 8.50/55 area for a 8.20 target.”