What ´s next after the FED’s hawkish hike? The team at TD focuses on two currency pairs:
Here is their view, courtesy of eFXnews:
The more implicit hawkish message from the Fed stands to benefit the greenback against the rest of the major currencies. The shift in the dots sent the hawkish message while Yellen failed to back peddle this message in the presser. We also note that Yellen poured cold water on the notion of letting the economy overheat, suggesting policy will remain sensitive to the closure of the output gap. Importantly, we think this backdrop broadly reinforces the broader uptrend in the USD. We expect the EUR to lead the broader region lower now that the ECB assumed a more dovish footing earlier this month.
The break of the recent low near 1.046 opens up a new range and a test of parity over the course of H117.
The commoditylinked currencies also look set for extended weakness. We are currently long USDCAD with an initial target of 1.3650 and see further downside in both AUD and NZD, especially after major technical breaks. A pickup in real rates leaves risky assets the most exposed with equities and higheryielders at risk of sharper declines.
Higher rates could remain supportive of USDJPY but we will be monitoring the performance of equity markets, as well, since firmer risk has also helped to buoy USDJPY since the election.
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