The tide will turn against the US dollar – Rabobank

While the easing of panic in the market has taken the USD index off its recent highs, economists at Rabobank believe the USD cannot be expected to weaken decidedly until investors feel confident enough to move back into the emerging market.

Key quotes

“Even though USD strength will emphasize downward pressure on GDP, investment and credit flow in emerging market economies, the greenback is now a necessary part of the economic infrastructure for many.”   

“When the market is again prepared to re-invest heavily in EM, we would expect the tide to turn against the USD.  That may be some time.  In the meantime, we expect continued broad-based strength in the USD.” 

“While we see scope for a dip back towards EUR/USD 1.05, USD strength is likely to be more marked in other currency pairs.  Amongst the G10 currencies the NOK, AUD, NZD and CAD could continue to be more volatile given their association with commodities and their resultant sensitivity to fears about global growth.”