USD Unwinds Initial Gains, China Caixin Services PMI Beat Aids Sentiment

Initial greenback strength dissipated as U.S. Tsy yields declined across the curve. While hawkish comments from '22 FOMC voter Bullard ("soft landing doesn't require gradualism") generated a fresh buying impulse in early Tokyo trade, the dollar struggled to cling onto those gains. The BBDXY index toped out at 1,276 and turned its tail, pulling back into yesterday's range.

• Risk sentiment in the region improved as China's Caixin Services PMI beat expectations (55.5 versus 53.9 expected), offering some comfort after disappointing data on manufacturing sector released a few days back. Spot USD/CNH posted a leg lower in response to the data, despite continued focus on Sino-U.S. tensions surrounding House Speaker Pelosi's ongoing visit to Taiwan.
• USD/JPY retreated from new weekly highs after the Tokyo fix. Lower U.S. Tsy yields were the likely culprit, as the spread between yields on 10-Year Tsys/JGBs shrank ~7bp from Tuesday's closing levels. Despite that, USD/JPY 1-month risk reversal plumbed a new weekly high.
• The kiwi dollar took a nosedive upon the release of New Zealand's Q2 labour market data and remains the worst G10 performer, albeit it is clawing back losses amid broader recovery in sentiment/USD sales, with NZD/USD sitting at $0.6248 (off session low of $0.6213 & 20 pips below neutral levels) as we type.
• New Zealand's unemployment rate unexpectedly edged higher from record lows, which came on the back of employment growth & participation missing forecasts. On the other hand, wage figures were strong, with the Labour Cost Index posting the steepest annual increase since late 2008.
• Solid wage data coupled with the latest CoreLogic House Price Index, which showed the largest quarterly decline in property prices since the GFC, may have helped prevent the market from boosting RBNZ rate-hike bets.
• Today's data highlights include U.S. factory orders & final durable goods orders, EZ retail sales and a suite of Services PMI readings from across the globe.
• Central bank speaker slate is dominated by Fed members, with Bullard, Harker, Daly, Barkin & Kashkari all set to make appearances.