The question everyone is asking? - Rabobank

Analysts at Rabobank asked the queston that everyone is asking: "Can the USD sustain the reflationary trade?"

Key Quotes:

"On the back of the US Presidential election the USD has sustained a winning streak vs. the EUR.

This has been driven by a sharp re-pricing of US inflationary risks and an aggressive widening in the spreads between yields on US Treasuries and Bunds.

Given the strength of the market’s conviction that the Fed will be tightening policy in December, it would seem reasonable to expect that bond yields can hold their firmer tone in the near-term.

That said it is difficult to see continued support for the reflationary trade and this suggests risk that the USD could give back some of its broad-based gains next year.

Not all currencies have responded equally to the reflationary and protectionist policy changes that have been outlined by the President-elect.

The worse G10 performer since the November 8 election is the AUD on the back of a step up in speculation that the RBA could cut rates again. The outlook for the Australian economy is strongly tied with that of China and Trump’s threat of protectionism could have far reaching implications."