June has, for the past decade, been a month in which the US dollar comes unstuck. Per the Dollar Index (DXY), the dollar has lost value in eight of the past ten Junes, and in one of the two profitable years, holders of dollars would have had to suffer a 3 percent intra-month drawdown to be returned only one-sixth of one percent come month-end.
With Monday underway – Monday being the second trading day in June 2018 – we should ask ourselves if this is, therefore, an opportune moment to exchange our dollars. It would seem strange to; after all, the dollar is riding a wave at present, having climbed in eight of the past ten weeks, gaining roughly 5 percent along the way, and having bettered all but the Japanese yen this year.
As for fundamentals, on first appearances the dollar appears well placed. Last Friday’s robust US employment report “puts the Fed in a position to build on their prior interest rate hikes,” says Jim Baird of Plante Moran Financial Advisors.
It might surprise, then, to learn that the currency experts aren’t particularly optimistic for the dollar’s prospects.
A dollar warning was offered in May by Citibank. The bank argues that a deterioration in the US’ twin deficits that will follow necessarily from Trump’s fiscal spending will spur dollar sales; the team suggests 5 percent dollar downside within six-to-twelve months.
In agreement is Julius Baer’s analyst David Kohl. “Dollar supply will rise via a larger budget and external deficit…[and] the dollar remains fundamentally overvalued,” Kohl said last week.
For June, “it really depends,” says Barclays’ Shin Kadota, on which dollar pairs are being considered. The dollar will do well in the short-term against the euro, Kadota believes. “The bottom line is that the US economy is doing better than its European peers, and this will continue to weigh on [EUR/USD].”
Against the Canadian dollar, the US dollar may also advance. Uncertainty created last week in the form of US tariffs on Canadian steel and aluminium, and by Canada’s own dollar-for-dollar retaliation, could make the Bank of Canada more cautious in the second half of the year or require a reassessment by traders of last week’s BoC hawkishness; any rethink on this issue would be a positive for USD/CAD.
For what it’s worth, I, for one, will not be looking for a broad dollar sell-off this month.