USD Weakness Appears Temporary – Westpac
Richard Franulovich, Strategist at Westpac, expects pullbacks in the greenback to remain shallow.
“Still a challenging backdrop, a range of data suggesting Q1 growth will be sub-par while weak March import prices, PPI and CPI all suggest the recent jump in inflation may indeed prove transitory, much as Chair Yellen has said lately”.
“Safe to assume next week’s Fed meeting will build on the aforementioned, the guidance likely to signal a lack of urgency once again”.
“Even though energy prices have firmed and risks around China and global growth seem to have dissipated the Fed is more likely than not to repeat, “global economic and financial developments continue to pose risks”.
“The Fed is likely to shy away from characterising where the risks lie for another meeting too. All told hard to see a hawkish surprise though the Fed is nevertheless likely to keep the door open to hikes”.
“A potentially softer Q1 GDP should add to the USD’s offered tone. USD weakness though shouldn’t extend more than a few weeks and no more than an additional 2-3% beyond current levels – a strong run of US data in Q2 has been a reliable feature of the macro landscape in recent years, a rebound eff ect from the residual seasonality that has tended to depress Q1”.