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“A strong patch of US data in Q2 and a relatively more hawkish Fed have placed renewed focus on “US divergence”, providing ample fuel for the USD,” notes Westpac’s Richard Franulovich.

Key quotes

“Eurozone data has been weak into Q2, raising the possibility of a more protracted downswing and the ECB pushed back the possibility of a interest rate increase deep into 2019. However, the perception of US outperformance may be approaching a local peak. As slide two shows the differential between our US and global data surprise indices is at unsustainable highs.”

“CAD the most undervalued dollar bloc currency. AUD, NZD and CAD have all been trading weaker than high frequency measures of their terms of trade would dictate (see slide three). However, CAD offers the most compelling value from a commodity valuation standpoint. Energy prices have eased about 10% from their highs but even so CAD has materially undershot this year’s run-up in crude oil. NAFTA disruption risk is the obvious CAD headwind but against that the BoC is much closer to lifting rates than either the RBA or the RBNZ.”