U.S. economy lost some immunity from global uncertainties - Westpac

Richard Franulovich, the head of FX strategy at Westpac, think the U.S. economy has lost some of the immunity from global uncertainties, hitherto a key backbone of USD strength.

• “May durable goods orders admittedly showed encouraging underlying resilience - a key fragility and focal point for the Fed– but a broad range of soft surveys have weakened in recent weeks.
• These weak surveys likely reflect the earlier threat of tariffs on Mexico (and maybe some waning of fiscal stimulus too). The good news is that Mexican tariffs have been abandoned implying a recovery in the surveys next month. The bad news is that the June data round is incomplete.
• The risk is that we see one more lunge lower in the USD (DXY low 95s) if ISM and payrolls are weak. But there are not many currencies in a position to capitalize on USD weakness; easing biases at the ECB, RBA and RBNZ will constrain EUR, AUD and NZD respectively, while Brexit drama will cap GBP, leaving JPY and CAD as the only real options. But even so we are not getting carried away; markets price in 75bp in Fed cuts this year and 115bp by end2020 - aggressive unless you’re forecasting a material slowdown, which we are not.”