USD: Housing data becoming more relevant

The rally in global equities yesterday pushed some high-beta currencies higher: in
G10, the New Zealand dollar and Swedish krona had a good day. However, currencyspecific
stories overshadowed the risk-on environment. GBP fell as markets slowly
digest the fiscal U-turn, Norway’s krone and Canada’s dollar suffered from their
elevated exposure to oil prices, where the post-OPEC cuts rally seems to have run
out of steam and sub-$90 levels are being explored again.
The trade-weighted dollar remains close to its highs, likely being shielded from the
equity rally thanks to market expectations of a 75bp Federal Reserve rate hike in
November, and a terminal rate priced at 4.90-4.95%. As long as the Fed retains its hawkish stance (we suspect well into 2023), dollar corrections should continue to
prove short-lived.
Today’s US calendar includes housing starts and building permits data, which will
provide hints of how much strain is being put on the housing market from sharply
rising mortgage rates. As discussed earlier this week, it appears that most
developed central bankers are accepting a contraction in house prices as a
necessary evil in the process of fighting inflation. Given the elevated weighting of
shelter in the US inflation basket, a (controlled) downturn in house prices would
likely mean a faster slowdown in inflation in 2023, and this is good news for the Fed.
It’s probably too early anyway to see a material impact on Fed rate expectations
from the housing data.
The Fed will publish the Beige Book today, and there are a few speakers to keep an
eye on: Neel Kashkari, Charles Evans and the arch-hawk James Bullard.
We expect a consolidation in the dollar around current levels, and retain a bullish
view on the greenback into year-end.

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