USD Looks Constructive Medium Term – Westpac
Strategists at Westpac argued the outlook for the greenback remains constructive in the medium term.
Key Quotes
“Fed officials, even doves like Rosengren and Kaplan, are signaling that
June is live and 2-3 rate hikes "make sense". That, along with strong
April retail sales, resuscitating Q2 growth hopes and a surge in the
April CPI that was more than just a gasoline story, has seen interest
rate markets finally "get the message", June Fed hike probabilities
having risen from near zero to 15% in recent days, while the yield curve
is at its flattest levels since 2007 and the Bund-Tsy 2yr spread is
pushing in the USD's favour again”.
“FOMC minutes this week and a long list of Fedspeakers in the next two
weeks including Chair Yellen, Deputy Chair Fischer, Dudley, Tarullo,
Bullard, Williams, Harker, Kaplan and Powell should see June hike
probabilities continue to firm, probably toward 25% before they
stabilise”.
“Highly doubtful that the USD will continue to ignore
that. Upside risks to the USD should not extend much beyond May payrolls
(3 June) though, striking Verizon workers and auto supply disruptions
after the Kumamoto earthquake could see May payrolls print as low as
100k”.
“Short term indicators pointing to DXY lower while medium term picture looks more positive”.