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What’s Next for the dollar ?

There remains a  high level of uncertainty around tax reform but  USD picture remains guardedly optimistic based on the fact that something is better than nothing when it comes to lower taxes.

As for today, the Greenback remains in limbo more or less susceptible to positioning nuances as dealers attempt to figure out this tangled mess of confusion. But on a net on a net basis, the song remains the same, and from a forward-looking interest rate differential perspective, the USD should prevail on this guardedly optimistic presumption despite a tentative bid to YST 10Y yields

Meanwhile and perhaps Washington’s worst kept secret, Jerome Powell will steer the Fed mandate suggesting a status quo guidance from the FOMC but it’s far too early to rule out a catch -as a catch -can veer in policy. Frankly, after four years of a dovish Fed narrative, it’s unlikely the new Fed Chair will be looking to rock the boat too aggressively and will likely remain as data dependent as Dr Yellen, but let’s see where this morning’s very animated discussion about the next Vice Char takes us. But overall despite the dearth of headline risk, US markets have been relatively subdued overnight.

Tariff time for the Loonie

The US Commerce Department is adamant that Canadian lumber producers gained mostly from selling into the US below fair value and received unfair subsidies that hurt U.S. producers. Therefore, it looks to announce a tariff. The rate: 21%.Softwood lumber kerfuffle has been the bain of the loonie for decades, so no reason to suspect otherwise this time around. I suspect the CAD will continue to roll over given the toxic combination of dovish BOC and trade sanctions

The British Pound

Carney carnage has left Sterling bulls in a world of hurt this morning as a one-and-done deal looks more likely the course for BOE policy.

Japanese Yen

USDJPY is trading very well bid most and suggesting the correlation US fixed income is wobbling sending a convincing signal that real money demand remains high

Australian Dollar

The market was expecting a modest recovery in retail sales but with the less than convincing on the dot headline print this morning the AUD bears are back en masse

EM Asia

Asian currencies should still trade with a bullish bounce given the strong global equity market and nd stability of renminbi. But frankly, retail flows remain extremely muted despite KRW’s outperformance of late.

The PHP has been trading well wholly sidestepping what was perceived to be a toxic cocktail around the Fed Chair and Tax reform narrative given the bullish USD persuasion of these storylines. Investors continue to appreciate the undervalued equity market pockets on the Philippines exchange suggesting a modicum of relief for the Peso is in store.

The MYR is a slight underperformer in the regions due to seasonality concerns as trader remain defensive despite a robust and a positively evolving global growth storyline

Author

Stephen Innes

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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