USD is struggling badly - Westpac

USD is struggling badly as a hawkish read of the ECB’s minutes and the BoJ’s decision to slow bond purchases, along with a rush into global reflation trades all taking their toll, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“We are not inclined to completely give up on the USD right here. The USD is acutely oversold and near term event risks tilts in its favour. The BoJ (23 Jan) could push back more forcefully against the hawkish read of their decision to cut long-term bond purchases while the ECB (25 Jan) could also push back against the hawkish read of last week’s ECB minutes. Any shift in guidance is more likely at their March meeting, accompanied by fresh staff projections. Ahead of that 600 SPD delegates vote this weekend on a proposal to start grand coalition talks with Merkel – the outcome is not a shoo-in.”

“Long term risk: the USD’s decoupling with firming yield support has echoes of 2003-2004 when the USD similarly struggled to capitalise on rising yields as the “twin deficits” took hold.”