ING expects the US Dollar to maintain its current range as investors look to today's jobs data to confirm labor market strength and gauge the impact of recent tech sector volatility.
ING's Turner sees the DXY as remarkably resilient and expects it to trade within a 101.50-102.50 range, supported by near 4% one-week deposit rates and a solid October jobs report. However, the dollar's yield advantage has softened as short-dated rates fell close to 50bp since late September, capping upside.
Within a 101.50-102.50 range on the DXY dollar index, likely towards the middle of that range.
So far FX markets have treated it as a sector-specific story, and the dollar has only reacted modestly.
ING expects defensive FX positions rather than a broad dollar decline, and names a lower AUD/JPY as a way these defensive positions will be expressed. As a risk-sensitive cross, it would weaken if the tech sell-off turns into a broader growth reassessment.
Defensive FX positioning is expected to be expressed through cross rates like a lower AUD/JPY rather than a broad dollar decline.
The article expects defensive positions in FX markets to be expressed in the emerging world through a weaker South African rand, which implies a higher USD/ZAR. This is a directional view rather than a hard data point, so conviction is moderate.
It sees defensive FX positions expressed through a weaker South African rand, implying dollar strength against the currency.
ING groups the Mexican peso with the South African rand as emerging-market currencies expected to weaken under defensive FX positioning, implying a higher USD/MXN. The call is conditional on risk-off sentiment deepening.
Defensive FX positions are expected to show up in the emerging world with a weaker Mexican peso, meaning a higher dollar-peso rate.
The US Dollar Index remains resilient, trading within a 101.50-102.50 range as markets await the October jobs report. ING analysts suggest that while the tech sector sell-off has not yet triggered a broad dollar decline, defensive positioning is shifting toward weaker emerging-market currencies and specific cross rates like AUD/JPY.
The dollar has reacted only modestly, as FX markets currently view the tech sell-off as a sector-specific event rather than a broader growth concern.
ING anticipates that investors will express defensive market positioning through these emerging-market currencies rather than through a broad-based decline in the US dollar.