USD: Near term momentum favours further upside - Westpac

According to Imre Speizer, Research Analyst at Westpac, near term momentum favours further US dollar upside but suggests not to 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” (such as services ISM) is beginning to crest.”

“This week’s event calendar highlight is retail sales, but we also have PPI, CPI, preliminary Michigan sentiment, the JOLTS survey and NFIB small business sentiment.”

“3 months ahead: Incremental news continues to verify the baseline scenario for a Trump stimulus package that ultimately underwhelms in size, scope and timing. Tax reform and infrastructure will likely run afoul of the same challenging political realities that torpedoed the repeal and replacement of ACA - the Republican party remains heavily divided on infrastructure, border adjusted taxation and revenue neutrality vs debt/ deficit-funded tax cuts.”

“That said, by the fourth quarter, NZ-US interest rates spreads should be even lower, and the Fed’s intentions regarding QE normalisation should be clearer. Markets will increasingly price the balance sheet’s shrinkage as a stronger US dollar.”