Policy divergence to support the dollar - Nomura

Analysts at Nomura published a latest report on the USD outlook for this week, highlighting that divergent monetary policy outlooks across the globe are likely to keep the greenback supported.

Key Quotes:

“Dollar strength continued over the week, and we see more room for strength ahead. We think monetary policy divergence can help push the euro towards its 2015 lows of 1.0 and USD/JPY rise to 110.”

“The flow backdrops also support this view, with euro-area investor repatriation flows, especially in equities, seem to be coming to end, while bond outflows continue.”

“Meanwhile, on the yen, we expect Japanese institutions to reduce their hedge ratios as hedging costs are higher than before.”

“There are also more signs that Japanese investors are buying foreign equities.”

“A Clinton victory would also support USD, and data have the potential to surprise to the upside.”

“The feedthrough of USD strength to equities and the US economy likely provides a limit to dollar strength, but both the macro backdrop and flow dynamics are more dollar-positive than before, so greater dollar strength could be tolerated than a year ago.”