Has USD weakness peaked? - Westpac

Analysts at Westpac suggest that the USD weakness has already peaked and expect it to bounce back to 93.4 levels by end-2017.

Key Quotes

“Throughout the month, the US dollar has continued to experience some weakness. This is due to a material loss of confidence in the US economy, especially in relation to the inability of President Trump to advance his reform agenda. Since the recent peak in the USD in late December 2016 (immediately following the Fed’s rate hike and the election of President Trump) the USD has depreciated by 11% against its DXY Index and the Euro and Yen have appreciated by 12% and 6% respectively against the USD. That depreciation is despite three Fed rate hikes and the announcement of balance sheet tapering. Is that move now overdone, especially in light of the FOMC’s announcements? We think so and would expect the DXY to rally back to 93.4 by end-2017, then 96.4 in December 2018.”

“Certainly, post FOMC, there are some positive signs for the USD. A lift in confidence in the Administration is a reasonable proposition for the next 12-18 months. Tax reform is much more likely than health care reform.”