US: Trump rising in the polls, USD appreciating - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that the USD is likely to fare poorly under a Trump presidency in the long run as Trump’s $1trn+ pa tax cuts would entail large fiscal risks, nearly doubling federal debt to 130% of GDP in a decade.

Key Quotes

“A weaker USD would be central to Trump’s mercantilist approach to trade too, while plans to deport millions of undocumented immigrants - looking through the impracticalities - would deliver a large negative jolt to the labour force and growth. These negatives would seem to outweigh a USD bullish tax holiday enabling multinationals to repatriate foreign earnings (i.e. another Homeland Investment act).

And yet for some months now the USD has tended appreciate as Trump has risen in the polls and vice versa.

As the election nears the impact on markets is likely to be felt more forcefully, especially if polls continue to tighten. And even though the USD is likely to fare poorly medium term under a Trump presidency, risk aversion effects are likely dominant short term and that is usually a USD positive. Indeed as Trump’s standing in the polls jumped last week CAD and MXN were among the two worst performing currencies – countries that will be hardest hit by Trump’s protectionist and anti-immigration stance.”