USD is looking punchy - Westpac

Research Team at Westpac, suggests that the USD is looking punchy but it is not fuelled by firming Fed hike hopes - Dec hike pricing has been steady around 60% while Q3 GDP forecasts are if anything down, the Atlanta Fed’s Q3 nowcast at 2.2% vs 3.2% in mid-Sep.

Key Quotes

“It’s more a case of negatives elsewhere boosting the USD - GBP is under pressure for example as PM May takes a hard line on immigration, raising risks of a ‘hard Brexit’, the BoJ’s pledge to keep easing until inflation is firmly above 2% is arguably shifting long term expectations for real rates down and USD/JPY up, while rates markets in Canada are pricing rising odds of a BoC easing. Hard to see an explosive USD rally though, certainly not with the Fed likely to deliver a dovish Dec hike and as officials continue to guide the long term neutral rate ever lower.”