USD Sentiment Powers ahead

Why is the US dollar rallying as if a December rate hike is a done-deal when markets are pricing a 50-50% chance of Fed lift-off?   Part of the answer is that a 50% chance of Dec tightening is the most hawkish probability since perhaps the start of June for the June meeting. The other part of the answer is that of relative policy divergence, namely, rising market (not ours) expectations that the ECB will extend (duration) or expand (size) its monthly asset purchases.

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The aforementioned certainty may have lowered the bar of requirements for the quality of US economic data to bring about a December Fed hike as judged by the recent factory orders and manufacturing ISM. The October and November releases of 1^st tier economic data will also be crucial. The current week could further escalate USD strength on the heels of prolonged expectations for a December Fed hike.

Starting with Wednesday's release of US Oct ADP 8:15 ET/13:15 London-GMT, Oct services ISM 15:00 London-GMT, New York Fed President William Dudley's speech 17:30 GMT and Federal Reserve Vice Chair Stanley Fischer's speech 19:30 GMT. Any hawkishness from these two with a fairly upbeat October jobs report will undoubtedly bolster the USD's momentum, yet it is unclear for how long.

But before all this, stay tuned for China's October Caixin services PMI due at 1:45 GMT.

Earlier on Tuesday, a new note was issued on the existing Premium NZDUSD trade.