Dollar Weighed By Month-End Flows, Renewed Political Tensions

(Bloomberg) -- The U.S. dollar traded with a bearish price action against the yen on repatriation flows throughout the morning as White House’s tensions with North Korea and Russia escalated over the weekend.

The Japanese currency rose as much as 0.3 percent against the greenback on month-end and Tokyo fix-related flows, as well as 110 barrier targeted by option desks and leveraged funds, according to traders who declined to be identified as they are not authorized to speak to the media. Vladimir Putin ordered the U.S. to slash diplomatic staff in Russia by nearly two thirds in retaliation for new sanctions approved by Congress. North Korea test-fired another intercontinental ballistic missile Friday.

“The fading confidence in the Trump administration on repeated political missteps is central here, even as economic activities’ data stabilize,” said Nizam Idris, Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. “This is likely yet another important week for the dollar” as traders await a slew of data, including PCE deflator and nonfarm payrolls, he said.

The U.S. currency is set to post a 2.2 percent loss for July, marking its fifth consecutive monthly decline and its longest losing streak since April 2011. The Bloomberg Economic U.S. Surprise Index climbed 3 percent Friday even as the second-quarter gross domestic product growth slightly missed estimates on an annualized basis.

“In the very near term, there is some scope for the dollar to make a little bit of a come back," said Sean Callow, a senior currency strategist at Westpac Banking Corp. "Expectations around U.S. growth have become a bit too downbeat. With the market about 50:50 for a year-end rate hike, there is scope for the dollar to find support there.”

• Bloomberg Dollar Spot Index gains 0.1% to 1,157.72
• USD/JPY falls 0.2% to 110.45 versus 110.31/74 range
  • June industrial production increased 1.6% vs est. +1.5% and previous -3.6%
• AUD/USD lost as much as 0.4% before recovering to -0.2% to 0.7973
  • Pair was sold off initially on sales against NZD and JPY, says Asia-based FX trader
  • Fall to session lows was more in response to China PMI miss than weak home sales for June, which at -6.9% lagged prior month’s reading of 1.1%, trader says

To contact the reporters on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net, Netty Ismail in Singapore at nismail3@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui