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, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Republican consensus on tax cuts and infrastructure is still absent, Russia-gate will slow the Republicans’ agenda and a debt ceiling showdown is on the horizon.”

“May CPI was indisputably soft, the 0.1% rise flattered by rounding (0.063% unrounded) and weakness was broadbased. The 3mth annualised core CPI is a paltry 0.0%, down from 3.0% in Feb. Chair Yellen won’t have any of it though, seeing weakness as transitory and expressing confidence that the Philips curve will lift inflation.”

“Markets are calling Yellen’s bluff. Despite her “full steam ahead” ahead message the Fed Funds and OIS curve are overall net flatter in the wake of the Fed. 10yr yields tell the same story. With the USD shedding some back-end yield spread support and the US curve still flattening the net takeaway is modestly USD negative.”

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