USD steadies but broader downtrend persists - Scotiabank

Markets should gear up a bit more after yesterday's subdued session and early trends suggest the USD may experience a limited rebound. Overnight trends reflect a recovery in global bonds on the back of speculation that the Japanese government may 'tweak' (i.e. reduce) issuance, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD rebounds modestly as global bonds recover

"Stocks are firmer and the USD has enjoyed broad gains against its major currency peers. The JPY is the main underperformer on the session while the MXN and CAD have shed relatively less ground. Dollar gains appear solid on the day, but the DXY's short-term down trend remains intact and broader worries about the USD outlook, driven by tariffs and the impact on the US economy, concerns about US fiscal policy treds and the administration's relations with the Fed remain."

"Note that the Fed's Kashkari (non-voter this year) said earlier today that 'moving slowly' on policy may be warranted amid tariff uncertainty. Looking at some of the challenges facing the USD, investors are also showing more awareness of the USD's relatively elevated, historic valuation (and are starting to consider the risks of a longerterm adjustment in its performance). All that is long hand for our view that there is limited upside potential in the USD in the short run. DXY gains may be contained to the 99.85/100.15 area. The broader trend in the USD remains geared to the downside."

"Looking ahead to today's session, US Durable Goods data are expected to reflect a significant reversal (-7.8% m/m) in April after the sharp (9.2%) rise seen in March. May Conference Board Consumer Confidence is forecast to rise modestly (87.1). There are a number of housing market reports due as well while the Treasury is auctioning USD69bn in 2Y bonds (results at 13ET). Australia reports April CPI data this evening and the RBNZ is expected to cut its benchmark rate 25bps to 3.25%.