USD rally to likely continue into early 2017 - Westpac

Richard Franulovich, Research Analyst at Westpac, notes that the USD rally likely continues into early 2017 assuming Trump continues to steer clear of some of the more extreme parts of his agenda and when more detail on fiscal stimulus take shape.

Key Quotes

“Non-negligible chance infrastructure spending is back loaded, certainly many Republicans are not enthused by infrastructure, leaving tax cuts to do the heavy lifting initially. High propensity to save some of the windfall implies the growth impact may be muted.”

“That should take steam out of the USD but there’s no shortage of other tailwinds that could take over and sustain strength deep into 2017; 1) a potential HIA-2, allowing multinationals to repatriate offshore earnings (the stock amounts to USD2.5trn); 2) a likely more hawkish Fed (there are two vacant seats on the Board of Governors); and 3) a rolling series of European political risks (Italian referendum Dec 2016 and Dutch, French and German elections 2017) which carry high risks of a populist backlash.”