In view of Richard Franulovich, Research Analyst at Westpac, key structural bullish USD drivers are still intact as a strong patch of US data in Q2 and a more “assertive” Fed have placed renewed focus on “US divergence”, providing ample fuel for the USD.
“Against that, Eurozone data has been weak into Q2, raising the risk of a more protracted activity downswing and the ECB pushed back the possibility of a interest rate increase deep into 2019. On the cautionary side, US outperformance may be approaching a local peak; the differential between our US and global data surprise indices is at unsustainable highs.”
“Escalating US-China trade tensions and Eurozone political instability – neither of which are likely to be meaningfully defused in the near term – should provide an additional bid for USD (outside of key safe havens). The fate of NAFTA, a long simmering concern, is next in line as a source of market risk.”