US Dollar May Rise as Services ISM Data Boosts Fed Rate Hike Bets

TALKING POINTS – US DOLLAR, ISM, ITALY, AUSTRALIAN DOLLAR, RBA

• US Dollar edging higher after ebbing Italy worries reverse haven gains
• Strong ISM data, further risk recovery may put Fed hikes back in focus
• Aussie Dollar correcting lower after surge with some help from the RBA

The US Dollar clawed its way higher in Asia Pacific after yesterday’s fourth consecutive daily loss amid ebbing worries about concerns about political instability in Italy and Spain. The greenback retreated from an 11-mont high after Rome took a step back from the brink and Madrid seemed to manage a relatively orderly removal of long-serving Prime Minister Mariano Rajoy.

It wouldn’t be long before the subsequent recovery in risk appetite reminded yield-seeking investors about where the Fed’s uniquely hawkish position in the G10 FX pecking order however, as expected. The second half of Monday’s session saw the US unit tracking higher alongside front-end Treasury bond yields while the priced-in 2019 rate hike outlook steepened and gold prices fell.

More of the same may be on tap as investors look beyond a lackluster European calendar to focus on May’s non-manufacturing ISM survey. It is expected to show that the pace of service-sector activity growth sped up last month after three months of deceleration. Analogous Markit PMI data hints the rebound may be more pronounced than analysts project, which may offer USD a further upward push.

Meanwhile, the Australian Dollar underperformed, losing ground against all of its major counterparts as the prices retraced some of the prior day’s outsized advance. A status-quo RBA monetary policy announcement contributed somewhat to selling pressure, but most of the currency’s losses were registered before it crossed the wires.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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