USD: Further gains are expected - Westpac

The US dollar index (DXY) has risen 4% during the past month - the largest monthly gain this year and further gains are expected, which will weigh on NZD/USD, suggests Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Helping the USD is the good run of economic data, PMI surveys breaking impressively higher, with 12 year highs in the services and manufacturing ISM notable examples. Highly accommodative financial conditions point to yet more upside surprises in coming months.”

“The FOMC’s composition will help the USD too. Even with a potentially centrist Fed chair like Powell, the voting rostrum has a hawkish bias in 2018 - voting regional doves Kashkari, Evans, and to a lesser extent Kaplan, are replaced by Mester (known hawk) and Mullinix (from the typically hawkish Richmond district). The pool of candidates that Trump will draw from to fill the four vacancies on the Board of Governors has a hawkish slant too (Hubbard, Warsh & Taylor).”

“The event calendar highlights this week are Sep CPI & retail sales (Fri). Also, there are nine Fed speaking engagements including Powell, Williams and Brainard, plus the FOMC minutes.”

“3 months ahead: The US dollar should continue to forge ahead through Q4 but as tax negotiations intensify in Q1, significant procedural, fiscal and political obstacles to large tax cuts are likely to become apparent, checking the USD’s upside.”