Analysts at CIBC, explained that from a fundamental perspective the US dollar could drop over the next year, taking into account the US economy, potential monetary tightening abroad and the current account deficit. They forecast DXY at 94.45 for Q1 2019.
Key Quotes:
“Continued solid economic data has helped propel modest gains in DXY lately, but that still looks set to unwind in the quarters ahead. A lofty expansion in Q3 was driven by American consumers opening their wallets, but a slowdown in job growth ahead as the economy approaches full employment will limit household spending. Two interest-rate sensitive sectors of the economy, autos and housing, are already displaying signs of softness when accounting for weather distortions, and the impact of tax cuts on business investment appears to be fading.”
“Some Fed members are starting to muse about being close to the neutral rate already.
“Core PCE inflation is still hovering around the Fed’s 2% target, and markets are already fully priced for Fed action next year, but are under-pricing the odds of monetary policy tightening abroad.”
“As the US economy continues to cool from a torrid pace of growth, and investors start to come to turns with the likelihood of a sizeable drag on growth from government restraint in 2020, the greenback is poised to depreciate. A widening current account deficit will also lead investors to other majors, marking the end of the USD heyday.”
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