USD: Fundamental momentum backing right here - Westpac

USD has fundamental momentum backing right here, strong retail/Fed Empire surveys reviving Q3 GDP tracking models back to a solidly above trend 3%, explains Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Short term trend lines that defined the DXY’s downtrend from midJune have been broken and it can bounce further here (+1% to +1.5%).”

“But it’s hard to see the USD mounting a multi week rally. US gov’t shutdown and debt ceiling risks in Sep/Oct will punctuate the nascent uptrend. A Dec hike still seems to be the Fed base case and the Sep 20 meeting will see reinvestment tapering formally taken up but the Fed likely cuts PCE and neutral rate forecasts at that meeting and the 4 CPI/PCE reports before the Dec Fed must meet and ideally beat expectations to justify a hike - a high bar.”

“Trump’s political trauma is deepening, the controversy around hard right protesters alienating Republicans yet further, dealing a serious blow to his reflation agenda.”