USD not a serious headwind – Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that a perception that global trade tensions may be ebbing, another benign US average hourly earnings reading and a decline in Eurozone political risks are all conspiring against the USD.

Key Quotes

“The USD’s longer term path will however will driven by the yawning policy differential between the Fed and the rest of the world and on that basis it’s too soon to call an end to the USD’s long term appreciation.”

“The USD might face potentially heavy pressure on another front; if continued appreciation becomes a headwind for the economy and hampers progress on the Fed’s mandate.”

“But on that score the evidence is not compelling either.”

“USD strength is associated with import price disinflation and weaker net exports and vice versa.”

“The USD’s recovery in 2018 has not become a meaningful headwind.”

“In recent months import prices have firmed and net exports have stabilised, the USD’s depreciation from late 2016 and into early 2018 a key driver. The firming of the USD this year will admittedly bring those trends to a halt. But, the USD’s appreciation does seem sufficiently large to trigger either a meaningful trend of import price disinflation or an materially adverse outlook for net exports.”