US Dollar Index to plummet to 86.8 by mid-2022 – Westpac

The US dollar downtrend has showed renewed vigour this month with the US Dollar Index (DXY) index breaking from last month’s 92.5-94.0 range to test 91.0, currently 90.8. 

Economists at Westpac have extended the scale of the USD downtrend from a further 2% to around 5% as the effect of vaccines and the stance of policy argue for a sustained USD depreciation, as does investors’ search for yield. 

Key quotes

“This decisive scientifi c success will speed the elimination of downside risks, most notably in Europe and the US, and also improves the likely scale of recovery around the globe.”

“Short and medium-to-long term interest rates are therefore set to remain at historically-low levels as far as the eye can see. Add in the extraordinary level of liqudity off ered globally by central banks, and the foundations for strong investment in financial and real assets are set.”

“As the opening-up of the global economy erases concerns over downside risks, investors will look for new opportunities for profit. Many will be outside the US and Europe. This is also the case for real assets, with the level and speed of development in Asia and emerging markets far more convivial to long-term investment.”

“On both a financial and real investment basis then, we see strong justification to extend the forecast decline in the US dollar index from a further 2% to almost 5%. This revised forecast will see the DXY index down to around 86.8 by mid-2022.”