Fed's dovish stance to undercut USD upside potential – Westpac

At 91.3, the US Dollar Index is literally at the midpoint of its 89.2-93.4 range of 2021. Near-term fate rests with April Nonfarm Payrolls, where nothing less than a blockbuster 1mn+ gain will give the currency a sustainable lift. Beyond that, the Fed’s resolutely dovish stance and growing Eurozone rebound optimism leave DXY soft in Q2, as reported by Westpac.

Influential dovish Fed core

“DXY’s near-term fate rests entirely with the April payrolls report. Few will be surprised by a 1.5-2 M payrolls increase, making for an incredibly high bar to resuscitate the US macro outperformance trade, especially with Europe getting her vax act together and reopenings gathering pace. A sub-1mn payrolls print could be devastating for near term USD prospects.” 

“Until there’s further ‘substantial progress’ in clawing back 8mn+ in pandemic job losses a near united dovish Fed front should prevail for some months yet, undercutting DXY upside potential.” 

“Q3 has a lot more potential for a major DXY breakout, including German federal elections (Sep), the fate of Biden’s infrastructure bill, a potentially clearer read on Fed tapering prospects and ratification of the Recovery Fund across European capitals.”