What’s Expected From the Fed

The dollar is clearly in demand and in an effort to make it crystal clear why, we take a closer look at what's expected for the Fed. The kiwi was the top performer to start the week in a lighter day of trading while the Swiss franc lagged. The RBA minutes are due later.  There are currently 5 Premium trades, including USDCAD longs. A new note will be issued on Tuesday.

US dollar trading was lumpy in New York on Monday. It rose early, was hit by quick selling and then grinded higher late. EUR/USD finished near the session low at 1.0825 to underscore the bearish bias.

The initial wave of US dollar buying came after the Fed's Bullard said there was a better than 50% chance of a Fed hike in September. The Fed has been careful to stress data dependence rather than pre-committing so comments like that have been rare. It's left market watchers with a wide spectrum of expectations.

Economists are particularly hawkish. A survey of private economists from the WSJ taken last week showed 82% forecasting a September hike. The derivatives market is far less convinced and pricing just a 40% chance.

Certainly, gold bulls appear to be frightened of a Fed hiking; something Ashraf looked at earlier today.

The bulk of US economic data is solid enough to hike but CPI, wage growth and business investment have struggled. If two of the three can pickup in the next two months of data, that would give the Fed enough confidence to hike but it's no guarantee.

Looking to Asia-Pacific trading, Japan returns from holiday and the BOJ minutes are due at 2350 GMT. Look for dovish hints but remember this isn't from the most-recent meeting so it's unlikely to make waves.

The highlight of the session will be the June RBA minutes at 0130 GMT. At the time of the RBA meeting, markets were in more turmoil due to worries about China and Greece. That was referenced in the statement and the discussion could give the minutes a more dovish feel. If so, the market won't need much of a nudge to sell AUD/USD. The market could be tepid with Stevens speaking in 24 hours.