Near term momentum favours further USD index upside - Westpac

In view of Richard Franulovich, Research Analyst at Westpac, near term momentum favours further USD index upside but would not get too carried away.

Key Quotes

“Focus will soon shift to US debt ceiling/govt shutdown risks in mid-to-late April, incremental news continues to verify the baseline scenario that comprehensive tax reform will ultimately underwhelm in size, scope and timing and partly related to that, “soft data” is beginning to crest.”

“NY Fed’s Dudley raised the prospect of a pause in rate hikes when the Fed begins balance sheet normalisation, a tapering in the process of reinvesting maturities flagged as a first step. Rates markets have taken notice, paring back 2018 hike expectations slightly. The USD should be immune in theory, with the Fed “merely” substituting one form of removing accommodation for another. But the risk is that the Fed approaches balance sheet normalisation very cautiously, at least initially in size and timing, to avoid a disruptive adjustment.”