USD edges lower, broader sentiment softens - Scotiabank

The US Dollar (USD) is trading marginally softer on the session. Trade is relatively quiet on the face of it, with the North American holiday schedule (Memorial Day next Monday) after Canada's day off yesterday perhaps affecting participation, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD trades slightly lower, recent rebound may be peaking

"The AUD is underperforming after the RBA delivered a 'dovish' rate cut earlier--a 25bps cut in the Cash Rate to 3.85% and a downgrade of growth and inflation forecasts that point to more easing ahead for a central bank that has been slower to participate in the global easing cycle than most other major central banks. The PBoC also cut two benchmark rates to historic lows earlier; both the 1- and 5-year Loan Prime Rates were cut a tenth of a point to 3.0% and 3.5% respectively. AUD weakness has pulled the NZD lower ahead of tonight's NZ trade data. "

"The CNY is marginally softer on the session. High beta FX is outperforming, with the MXN and ZAR leading intraday gains against the USD. Asian and European stocks are firmer but US equity futures are down on the session amid concerns that the recent rebound may be running out of legs. Trade uncertainty remains high and while last week's US sovereign credit downgrade can hardly have come as a surprise to markets--and had little, obvious impact on the already weak trend in US debt over the past few weeks--investors cannot be complacent amid signs that the US economic momentum may be slowing amid the fallout from President Trump's tariff policy."

"Risk reversal pricing continues to reflect a continued strengthening in dollar-bearish sentiment, with the premium for 3m EUR calls over similar delta EUR puts reaching 1%, the highest since 2009 (outside of the pandemic market volatility). Indeed, the broader downtrend in the DXY remains intact, with the index push to 102 last week satisfying corrective pressure, without signaling a reversal. If anything, the fall back from last week's peak suggests the rebound is poised to fade and reverse to the downside."