USD will struggle to make much headway - Westpac

The USD will struggle to make much headway as growth and inflation do not warrant a hawkish Fed, Republican consensus on tax cuts and infrastructure is still absent, and Russia-gate will slow the Republicans’ agenda and a debt ceiling showdown is on the horizon, explains Imre Speizer, Analyst at Westpac.

Key Quotes

“By year end though, if these risks dissipate (admittedly a big if), the US dollar should resume the trend rise witnessed in 2016.”

“This week’s data calendar picks up the pace: durable goods orders, Conf. Board and Michigan confidence, Richmond and Chicago PMIs, plus the highlight May PCE inflation along with plenty of Fedspeak (including Yellen).”

“May CPI inflation was indisputably soft at 0.1%, weakness broadbased. The 3mth ann. core CPI is a paltry 0.0%, down from 3.0% in Feb. While Fed Chair Yellen won’t have any of it, seeing the weakness as transitory, markets are skeptical, pushing interest rates lower, and in turn the US dollar.”