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In its latest client note, analysts at HSBC forecasts the US dollar rally to continue on the back of Fed’s interest rate outlook for this year.

Key Points:

Sees the USD rally continuing as the market sticks to its view that Fed won’t deliver a tightening path laid out in the median dots.

That creates an asymmetric upside risk for the USD.

Equally important is the fact that the other G-10 central banks have delayed their own normalization processes.

The market has failed to anticipate a rally in the USD at the start of the year.

USD rally is also being supported by the ongoing reappraisal of an appropriate level of risk premium for emerging markets.

HSBC remains bullish on USD because valuations aren’t stretched.

AUD/USD Q3 forecast slashed to 0.72 from 0.73 and Q4 forecast to 0.70 from 0.72 previously.

As for NZD/USD, the Q3 forecast revised downwards to 0.67 from 0.69 and Q4 forecast to 0.65 from 0.68 previously.