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20 Mar 2014
Turning point for USD? - Westpac
FXStreet (Barcelona) - Sean Callow, Senior Currency Strategist at Westpac believes that we could be at a turning point for USD.
Key Quotes
“So why the sharp bounce in USD and rise in US yields? The dollar rallied steeply across the board while Eurodollar yields for contracts from Sep 2014 onwards surged, by 8bp for June 2015 and a stunning 19-24bp for 2016 contracts. This is likely to be a potent source of fuel for USD for some time.”
“The weighted average of FOMC member forecasts of the funds rate was raised in both 2015 and particularly in 2016 (the Fed publishes these as a cluster of blue dots). Given the accompanying lowering of GDP forecasts since Dec, this is a clear expression of confidence that the US recovery is on track and that it would take a great shock to divert the Fed from its plan to normalize policy.”
“Ms. Yellen was even willing to suggest that the “considerable time” expected between the end of QE and the first rate hike could be 6 months. Not interested in caveats on growth etc, markets have shifted quickly to price in a scenario where a rate hike is a very real chance by say June 2015.
“The Fed’s stance reinforces the positions we held ahead of the FOMC meeting, short AUD/USD and long USD/KRW. Jonathan discusses some of the factors behind the outlook for the won on p5 and certainly USD/KRW was very sensitive to the changed Fed outlook in Q2 2013.”
Key Quotes
“So why the sharp bounce in USD and rise in US yields? The dollar rallied steeply across the board while Eurodollar yields for contracts from Sep 2014 onwards surged, by 8bp for June 2015 and a stunning 19-24bp for 2016 contracts. This is likely to be a potent source of fuel for USD for some time.”
“The weighted average of FOMC member forecasts of the funds rate was raised in both 2015 and particularly in 2016 (the Fed publishes these as a cluster of blue dots). Given the accompanying lowering of GDP forecasts since Dec, this is a clear expression of confidence that the US recovery is on track and that it would take a great shock to divert the Fed from its plan to normalize policy.”
“Ms. Yellen was even willing to suggest that the “considerable time” expected between the end of QE and the first rate hike could be 6 months. Not interested in caveats on growth etc, markets have shifted quickly to price in a scenario where a rate hike is a very real chance by say June 2015.
“The Fed’s stance reinforces the positions we held ahead of the FOMC meeting, short AUD/USD and long USD/KRW. Jonathan discusses some of the factors behind the outlook for the won on p5 and certainly USD/KRW was very sensitive to the changed Fed outlook in Q2 2013.”