Richard Franulovich, Head of FX Strategy at Westpac, points out that broad swathe of US housing data now underperforming, from starts to permits, and new and existing sales; rising rates and less favorable tax treatment for home ownership likely culprits.
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“Yet despite that, near term data flow should maintain the impression of US growth leadership; advance Q2 GDP (Jul 27) likely prints 4%+, regional PMIs point to another solid ISM (Aug 1 & 3), while initial claims and surveys point to another +200k jobs gain.”
“Against that, some USD negatives are percolating; underlying trade tensions persist but a notable conciliatory tone is apparent in both EU-US and resuming NAFTA talks. Targeted monetary and fiscal easing by Chinese policymakers appear to have buoyed hopes that policy is now underwriting growth there too.”
“The USD could see a modest retracement but should maintain the bulk of H1 gains. Bigger risks could materialise in late 2018 – as congress flips to probable Democrat rule, the Fed potentially rethinks the pace of hikes as policy approaches neutral and the tax cut boost to growth peaks.”
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