USD: Ample upside potential – Westpac

Ample upside potential for the USD as recently as a couple weeks ago has been depleted somewhat, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“A Dec 13 FOMC hike is mostly priced in, Jerome Powell – the less hawkish mainstream continuity candidate – appears to be the favoured candidate with key Admin officials, while EZ peripheral sovereign risk has been defused, if only for the time being after Catalonia’s separatist leaders stopped short of a unilateral declaration of independence. Opposition among key Senate Republicans to a large tax cut on cost grounds becoming more apparent too.”

“Beyond a near term stumble, USD remains in good shape. Accommodative financial conditions point to yet more upside surprises in coming months while yield spreads should gravitate in the USD’s favour as the Fed Funds rate extends its glacial ascent above other key cash rates and as the Fed’s balance sheet shrinks relative to the ECB and the BoJ’s balance sheets.”