USD remains under downward pressure - Westpac

Imre Speizer, Research Analyst at Westpac, explains that the US dollar remains under downward pressure amid skepticism regarding Trumps fiscal stimulus promises, uncertainty the Fed will maintain its projected rate hike path, and European political developments (most recent the French election results).

Key Quotes

“The threat of a US government shutdown will also hang over the dollar near term, as will extreme long USD positioning among speculators.”

“In this week’s event calendar, government funding, Trump’s trade tensions and geopolitics will vie with housing data, the Fed’s regional and Markit surveys, and Q1 GDP.”

“3 months ahead: Incremental news continues to verify the baseline scenario for a Trump stimulus package that ultimately underwhelms in size, scope and timing. Tax reform and infrastructure will likely run afoul of the same challenging political realities that torpedoed the repeal and replacement of ACA - the Republican party remains heavily divided on infrastructure, border adjusted taxation and revenue neutrality vs debt/ deficit-funded tax cuts.

That said, by year-end, NZ-US interest rates spreads should be much lower, and the Fed’s intentions regarding balance sheet normalisation should be clearer. Markets should price balance sheet shrinkage positively into the US dollar.”