We go against consensus and call for a USD recovery in 2018. The AUD is also in for a good year.
As we commenced 2017, the market consensus was for a USD bull run to commence a as result of stimulating economic policies of the Trump administration. In reality the opposite occurred, as the administration took all year to pass the Tax Bill. Now as we roll into 2018, market consensus is for the 2017 Greenback weakness to continue. However, the tax bill has now been passed, US economic indicators are towards cycle highs, and the short end of the USD yield curve has rocketed in 2017. This latter point means that holding USD short positions is becoming increasingly expensive and should capital inflows accelerate thanks to the new tax bill a short squeeze could well occur in the months ahead.
Domestically economic fundamentals are likely continue to improve, and we expect the terms of trade position to support the AUD through 2018. We also expect the RBA to start hiking interest rates sometime in the Q2 which will again support the AUD particularly against the EUR, JPY and GBP.
- The Greenback completes its worst year in decade, will 2018 mark a change in fortunes?
- BREXIT negotiations to continue
- Central Bank Policy divergence to start impacting currency markets
- Global return of inflation
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