Synopsis:

ANZ expects the USD to remain in a consolidation phase and largely range-bound over the coming weeks, despite bearish sentiment and political headwinds. A clearer directional decline in the dollar is more likely in Q4, as macro data reveals the fading of US exceptionalism.

Key Points:

• Tariff Uncertainty Weighs on Sentiment:

  • Tariff policy has seesawed in recent weeks:

    • 90-day reduction on China tariffs announced

    • 50% tariffs on EU imports delayed to July 9

    • Steel & aluminium tariffs now set to rise from 25% to 50%

  • These developments have heightened fiscal concerns, contributing to negative USD sentiment.

• Current Positioning and Market Reaction:

  • USD net shorts stabilized in May, while DXY found support near its YTD low of 98.

  • Market has priced in two Fed rate cuts this year, in Q3 and Q4, aligning with ANZ’s view.

• Short-Term Outlook (June–July):

  • USD expected to consolidate within the 98–100 DXY range.

  • Upside risks remain, but any rally above 100 is seen as a selling opportunity, particularly vs EUR and GBP.

  • Near-term USD moves will be driven by incoming macro data, with tariff and fiscal noise still influencing yields and positioning.

• Medium-Term Outlook (Q4+):

  • ANZ anticipates a clearer USD downtrend later in 2025 as the data begins to reflect fading growth momentum and waning US exceptionalism.

Conclusion:

While macro headwinds and unstable trade policy keep USD sentiment bearish, ANZ sees near-term consolidation ahead of a deeper decline later this year. Traders should fade rallies above DXY 100, with preference for long EUR and GBP against the USD.