USD remains vulnerable - Westpac

According to Imre Speizer, Research Analyst at Westpac, the US dollar has stalled at multi-month lows and remains vulnerable.

Key Quotes

“Skepticism regarding Trumps fiscal stimulus promises, the threat of a US government shutdown, and a soft patch for the economy hang over the dollar near term, as does extreme long USD positioning among speculators.”

“In this week’s event calendar, Trump’s resurrecting reforms and trade tensions vie with the FOMC (3rd) & jobs data (5th).”

“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.”