USD has probably made a cycle low - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that the key event for the US dollar this week will be the FOMC decision on Wed (Thu morning NZ time) and a hike is almost assured, so that more attention will be paid to the Fed’s projections of future hikes.

Key Quotes

“An upward drift in the projection range and potential firming in other forecasts should have the USD firming into the FOMC. However, expectations are rising, and the market could be disappointed if the 2018 median does not rise to imply four hikes, even if the Fed sends a strong “full steam ahead message”.”

“3 months ahead: Consensus expectations universally expect higher inflation and higher interest rates in 2018. The risk is that inflation may continue to undershoot expectations, but the Fed forges ahead with rate hikes (and balance sheet normalisation). If the Fed delivers five hikes in 2018 and 2019 - as projected by the median - absent any meaningful acceleration in price pressures, the stance of policy will push well past accepted estimates of neutral. Hikes thus far amid low inflation have not been an “issue” given that the Fed has been well below neutral. If the Fed ends up running implausibly tight policy, it raises the risk that the Fed may need to ease back at some point in 2018, a development that will prove highly problematic for the USD.”