US Dollar Index to race higher beyond the recent 97.44 highs – Westpac

US Dollar Index (DXY) finally showcases its safe-haven qualities as geopolitical tensions around Ukraine surge. DXY can also bank on outsized interest rate support to provide a solid floor, economists at Westpac report.

Weakness into the low-95s a buying opportunity

“DXY finally showcasing its safe-haven qualities as geopolitical risks around Ukraine reach fever-pitch. The size and scale of military operations is a wide-open question, but it’s safe to assume markets will be headline-driven for some time yet.”

“DXY can also bank on outsized rate support to provide a solid floor to the currency. OIS Fed pricing by end-2022 continues to edge higher, to +164bp, though the probability of a 50bp March lift-off has slipped to about 20%.”

“Weakness into the low-95s a buying opportunity, for a bigger run beyond the recent 97.44 highs, as the Fed pulls away from the ECB with a more material monetary policy tightening in coming months.”