- Currency futures found slight buying on Monday as the dollar weakened.
- Last week’s strong US data weighed heavily on the currency futures.
- Markets now focus on key jobs data from the US and central bank commentaries.
Currency futures found respite on Monday after experiencing a significant retracement last week. The fear of a potential US government shutdown has weighed on the US dollar, lifting the major currencies. Following the Fed’s cautious commentary and a series of upbeat US data, the markets appear to shift towards a more balanced outlook.
Over the past week, strong US fundamentals, including a Q2 GDP revision of up to 3.8%, a recovery in durable goods orders, and a drop in jobless claims to 218k, provided adequate support for the dollar. The strength forced markets to recalibrate the odds of aggressive Fed easing. Meanwhile, Fed Chair Powell’s remarks, focusing on a careful pace of rate cuts, also tempered dovish market sentiment.
However, the narrative is shifting today as the dollar is under pressure amid gains in other currencies and a slightly better risk tone. The dollar long positions are facing a pullback, while the euro, pound, and commodity-linked currency futures have gained somewhat. The potential US government shutdown on 1st October is the key factor weighing on the dollar. Meanwhile, President Trump is set to meet the congressional leaders to avert the shutdown. This could delay the release of the September NFP, which is a key input for the Fed.
Dollar Index futures are adjusting downwards, with other currencies taking advantage of a softer dollar. The shift suggests that the markets are expecting a downside surprise in the US data or reconsidering the central bank divergence.
Key Events Ahead: RBA, US Jobs
Looking ahead, the RBA policy meeting is scheduled for Tuesday, with a primary focus on US job market data, including ADP, NFP, and JOLTs job openings. Another catalyst is the US ISM activity releases and commentary from Fed and ECB officials, which could trigger repositioning in currency futures. Stronger US jobs data could reinforce the Fed’s cautious view, giving strength to the US dollar.