Stay cautious on the USD - Westpac

Research Team at Westpac, suggests that their model remains very cautious on the USD given that vols remain very low and yield spreads are not trending aggressively in its favour, even though confidence in a Dec Fed hike continues to firm.

Key Quotes

“Were it all about our macro scores the USD would come out on top, certainly a heavy slate of event risk next week – both ISM surveys, payrolls and an FOMC meeting - should tip the scales in favour of at least one more clear leg-up for the USD. The Richmond and Markit PMI’s back a higher manufacturing ISM while residual seasonality in the jobs data points to a clear bias in favour of stronger prints in Q4 (11 of the last 15 Oct-Dec releases over the last 5 yrs have beaten consensus vs just 4 of the last 15 Jul-Sep releases). The Fed statement is likely to cement Dec hike expectations too noting that either the “case for an increase in the federal funds rate has strengthened,” as per the last statement.”