Trump to support the broad dollar – Nomura

Research Team at Nomura, notes that the DXY has rebounded strongly from the Trump-lows on election night and the market is interpreting Trump to mean more fiscal expenditure and higher US inflation which should be dollar supportive.

Key Quotes

“Long USD positions against low yielders and low inflation currencies (JPY, EUR) are attractive, with the domestic backdrop in the Eurozone and Japan remaining FX negative. Political risk could also attract greater focus in Europe. We also expect CAD weakness to result from Mr Trump’s protectionist trade policies, though this may take time.”

“Looking ahead, focus will be turning towards what Trump will actually do/ be able to do as president. The outlook here is uncertain, but large changes are likely. Trump’s election also raises the possibility that a tax break on the repatriation of foreign earnings could be enacted. We estimate this flow could be around $500bn with EUR/USD, GBP/USD and USD/CAD most affected. However, the actual FX flow could be relatively small and may have only a marginal impact on FX, depending on how much of foreign earnings are actually held in foreign currency.”