PPI Report Brings Dollar Bulls Back to Earth
The July PPI report has provided a mixed bag of news for dollar bulls. The final demand prices were flat on the month, coming in below the expected 0.2%, while the annual rate slowed to 4.7%. This suggests that pipeline inflation is cooling, which could reduce the urgency for a September Fed rate hike.
Despite this, the USD DXY Index remains near 99.9, roughly flat on the week and still above the post-payrolls low of 99.5. The two-year Treasury yield has slipped toward 4.17%, but the long end remains sticky after weak 10-year auction demand pushed the stop-out yield to 4.683%. This mix helps explain the dollar's resilience, as front-end Fed pricing is softer, but term premium and supply concerns are keeping the rates backdrop from turning fully bearish.
The USD/CAD has fallen from its June peak near 1.4234 and now has room to test the 1.37-1.38 zone if trade headlines improve and US yields stay under pressure. The August 19 tariff deadline is a main near-term risk, with Canada and the US reportedly trying to reach an interim deal before a new 50% tariff on roughly US$20bn of Canadian exports takes effect.