The US dollar bearishness is overdone, think analyst at the National Bank of Canada, taking into account the inverse correlation between equity markets and the broad USD index is unusually strong at this time. They consider that a return of risk aversion would push the greenback to the upside.
Key Quotes:
“In our view, the USD bearishness is overdone. As we argued in last month’s Forex, the inverse correlation between equity markets and the broad USD index is unusually strong at this time. A return of risk-off sentiment in equities would be more likely to push the greenback up than down.”
“What could drive safe-haven flows back to the USD? First, there is some reason to doubt the effectiveness of a new round of U.S. fiscal stimulus at a time when a resurgence of Covid-19 cases is likely to undermine employment growth and labour income. Second, we are concerned that a high jobless rate will revive Washington’s protectionist tendencies in the run-up to the presidential election.”
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