USD keeps the firm note in the medium term – Westpac

Richard Franulovich, Chief Currency Strategist at Westpac, believes the greenback could pick up extra pace in the next months.

Key Quotes

“We have jettisoned our cautious USD view. The next 3mths could be a carbon copy repeat of Q4 2015. Back then (Oct 2015) the Fed fuelled a solid USD rally when it put markets on notice with the line that, “In determining whether it will be appropriate to raise the target range at its next meeting…”. That saw the USD index rally about 5% into early Dec, when it peaked just ahead of the Fed’s inaugural hike”.

“The FOMC seems set to repeat that language (2 Nov), setting up a hike on 14 Dec. The Fed is likely to deliver a “dovish” hike marking a peak in the USD”.

“Beyond that, 30+ year lows in GBP, gold’s breakdown through key support levels and persistent strength in USD/JPY – arguably a function of falling long term real interest rate expectations in the wake of the BoJ’s pledge to keep buying assets until inflation is “firmly” above 2% – all add to the impression of a broadly firming picture for the USD”.