USD: Constructive backdrop remains in place - Westpac

In view of the analysts at Westpac, a constructive backdrop for the US dollar remains in place as US interest rates continue to support the dollar, in turn driven by hawkish Fed March hike signals and a steady run of strong data.

Key Quotes

“Markets are now pricing a 95% chance of a March hike (from as low as 30% a few weeks ago), with Yellen most recently saying on Friday the case for such was strong.”

“This week’s payrolls data should seal the deal for a March move, unless it’s very weak in which case March bets are off. Growth momentum has firmed in the new year, judging by the surveys, lending upside risk to payrolls, although at this stage of the cycle hourly earnings are just as important.”

“3 months: We suspect the USD will falter in summer when it becomes clear that meaningful tax reform will run afoul of challenging political realities: even if Senate filibuster risks can be avoided by using the 2018 reconciliation bill (where only a simple majority is needed) great swathes of the Republican party remain lukewarm on infrastructure, border adjusted taxation and funding spending plans by gutting government agencies.”