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US macro outperformance narrative is set to continue, backed by reopening, a strong vaccination drive and stimulus payments. In the view of economists at Westpac, the 94.50 level is an achievable three-month target for the US Dollar Index.

US Dollar Index is lower on the week despite the huge rise in US NFP in March

“The USD and US yields have priced in the initial stages of the reopening and stimulus fuelled rebound – the marquee payrolls and ISM reports for March topped even the most bullish forecasts (net of revisions), yet yields and the DXY are net steady since mid-March. But the rebound is only just hitting its stride and yet more dramatic upside surprises across a sweep of key data are likely in coming months.”  

“Fed messaging continues to underscore that there will be no hasty retreat from accommodative policy. With US employment at 144M vs a pre-covid full employment trend closer to 155M, they will be understandably patient for many months to come. But if payrolls are printing around 1M+ for the next few months Fed officials might be emboldened to lay out their tapering plans in Q3.”  

“As long as 91.50 holds, DXY’s uptrend should resume, an eventual return to the 2020Q3 highs in the 94.50 zone an achievable target.”