USD: Unwanted and unloved - Westpac

The US dollar remains unwanted and unloved, despite US economic data perming well relative to expectations, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“A key negative factor has been the recent slump in inflation, which threatens to persist longer than the Fed had expected, putting further rate hikes in 2017 at risk.”

“The US event calendar this week contains key CPI data. The four CPI reports before the 15 Dec Fed meeting must show a definitive uptrend - a high bar - to satisfy a market which has become more wary about a sustained inflation undershoot.”

“The Fed is sure to announce balance sheet tapering on 20 Sep, but they will probably cut core inflation and neutral interest rate forecasts too - hardly USD positive.”

“3 months ahead: A key long term USD risk is Trump’s tax overhaul, where the path to success continues to narrow. Congress is sure to balk at the sheer size of the package – with personal and corporate tax cuts amounting to more than $5trn alone. Major fissures have opened between President Trump and GOP leaders. Multiple flashpoints, including hurricane risks, North Korea and the ongoing special counsel investigation into Russia and Trump, threaten top push tax cuts onto the backburner.”