USD has probably made a cycle low – Westpac

Imre Speizer, Research Analyst at Westpac, suggests that key events which may support the US dollar during the month ahead are: the final passage of a reconciled tax bill through both houses, payrolls/earnings data early in the new year,and any speeches from Powell (Yellen’s term ends 4 Feb).

Key Quotes

“3 months ahead:

• H1 2018 looks fertile for USD upside. Yield spreads should continue to broadly trend in the USD’s favour with tax cuts and still very accommodative financial conditions underwriting solid growth outcomes. Real time estimates for Q4 GDP are tracking around 3%. If realised, that would make for three consecutive quarters of 3% annualised growth, a feat not achieved in the post-crisis era.
• Fed speakers are unlikely to pre-commit Powell to an immediate March hike (his first as chair) but markets can still err toward pricing more Fed hike risk in H1 2018 (currently +25bp by June). Growth should continue to track near 3% thanks to solidly supportive financial conditions while the voting regional rotation schedule turns markedly more hawkish: 2017’s crop of strong dovish voters such as Kashkari and Evans are replaced by the hawkish Mester and centrist Williams.
• Thus, the USD index could see another 4-5% upside, putting it within striking distance of 100 in H1 2018.”