USD: outlook still looks constructive – Westpac

Richard Franulovich, Chief Currency Strategist at Westpac, assessed the prospects for the greenback in the near to medium term.

Key Quotes

“Chair Yellen likely to stick to the script for moderate growth, unlikely to be drawn on what Trump stimulus will mean for the outlook until details are known. That said, the FOMC likely wants some optionality around a potential March hike, even if they do not deliver, warning Fedspeak in coming days, including Yellen’s testimony could have a hawkish lean”.

“But the underlying outlook remains positive. Markets are impatient with the Trump administration's heavy focus on isolationism but congress is scheduled to address Trump’s pro-growth agenda including border adjusted taxation, broader tax reform, another tax repatriation holiday and infrastructure beginning April. Some concrete progress on this front should restore the Trump long USD trade, at a time when the Eurozone will be knee-deep in sovereign risks around Dutch, French and German elections. Rates markets continue to price in fewer hikes (+52bp by Dec 2017) than the Fed’s median (+75bp)”.