A note via Westpac on their expectation that the USD downtrend will resume.
- The US dollar gained ground this month on a growing expectation that the US economy will lead the global recovery in 2021.
- The underlying catalyst of this circa 1.0% partial reversal of the DXY's prior 12% depreciation since March 2020 is the safe passage of President Biden's stimulus package through Congress - a package that equates to almost 10% of GDP. Not only have inflation expectations moved near the FOMC's 2.0%yr medium-term target, but real yields have also begun to rise back towards zero.
- Whether the US dollar rises further from here or recommences its year-long downtrend will depend on whether the US' economic performance proves comparable to or stronger than that of its key trading partners.
- Our core view remains that the recovery in global growth will be greater in scale and longevity than that seen in the US, seeing DXY fall back through the 91.0 level of 5 February by December 2021, to just below 88.0 towards the end of 2022.
(bolding mine - WPAC expecting other currencies to outperform USD )
