The FOMC decision is Wednesday
Is it too soon to talk about Wednesday's FOMC decision?
Morgan Stanley analysts say they are bearish on the US dollar after Friday's WSJ report that the Fed may be discussing an earlier-than-expected end to balance sheet normalization and could announce it as early as this week.
"Markets are unprepared for this change and it could have significant FX implications, in our view. Along with being USDnegative, less liquidity withdrawal from the Fed would be a positive for EM FX, particularly the high-yielders with large USD-denominated liabilities. Our preferred longs are high-yielding, oil-exporting and risk-sensitive FX like NOK, SEK, BRL, ZAR, CLP, CNH and CAD. USD, NZD, AUD and CHF look good as funders."
They expect to see USD/CAD falling to 1.2800.
