US: Equities and USD going in opposite directions – ANZ

The Dow Jones Industrial Average soared through the 22,000 level overnight, led by Apple and the index is now up 23% from its November lows while the USD TWI is on the slide, points out the research team at ANZ.

Key Quotes

“After the initial election surprise tantrum, US equities took off on optimism that Trump would promote a business-friendly policy agenda. His administration’s subsequent difficulty in passing legislation does not seem to have impacted sentiment much. Meanwhile, the USD TWI is on the slide, down nearly 9% since it peaked at the end of last year. The divergence between the two this year is hardly historically unprecedented or even particularly unusual, but it certainly marks a change from the pattern that’s been evident since 2011 of US equities and the USD moving broadly together.”

“A negative correlation can be explained: a weaker USD is a positive for US exporting firms, and generally also boosts global liquidity and therefore risk assets. However, the two can also move together on general sentiment regarding the US economy. In this light, equity bullishness underscores that there is a certain “devil may care” attitude permeating US equities, and risk assets more generally. It adds up to a challenging backdrop for the Federal Reserve in its aim to steadily yet carefully mop up the QE liquidity that has been sloshing around global markets for years.”