USD: Test of the 100 level into the 14 Dec Fed hike on the cards - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that the USD is in excellent shape and a test of the 100 level into the 14 Dec Fed hike on the cards.

Key Quotes

“Fed officials have set a low bar for a hike, the lion’s share of Fedspeak has leaned hawkish lately and while the data has not been spectacular it mostly confirms their outlook. The ECB (20 Oct) meanwhile likely has a dovish lean though a pre-commit to extending QE seems more likely in Dec. Q4 2016 could be a carbon copy of Q4 2015 when the USD index rallied 7% low-to-high as FedECB policy divergence hit new heights.

A dovish Dec hike likely marks a peak for the USD, just like Q4 2015. As shown over EZ GDP underperformance vs the US has waned considerably. After lags EZ labour market underperformance should diminish too and bund-Tsy spreads should swing in EUR’s favour eventually, but that is a story for 2017.”