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#1 15-04-2019 08:09:06

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From: Paris - France
Registered: 21-12-2009
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USD: the dollar's resilience could still last a few months (Westpac)

USD: the dollar's resilience could still last a few months on the forex (Westpac)

Richard Franulovich, Head of FX Strategy at Westpac, suggests that we examine the impressive resistance of the dollar against its G10 counterparts, despite the Fed's shift to a neutral position and the large decline in the dollar's short-term yield advantage.

"At least one source of resilience comes from the long end of the bond curve; while U.S. yields have fallen significantly, 10-year yield spreads have not declined as much as 2-year yield spreads have.

An overview of the USD and yield spreads towards the end of previous tightening cycles shows that historically, yield spreads tend to narrow in relation to the USD as we move closer and closer to the last increase of a tightening cycle.

The USD tends to be very strong at the end of the cycle - i.e. a persistent appreciation even after the Fed's last action through multiple previous tightening cycles.

The flat US yield curve is of course a notable feature of the current landscape and is often associated with the strength of the USD.

The net result is that the resistance of the US dollar despite the Fed's pause isn't a mystery. The above-mentioned correlations, curve trends and historical anecdotes tend to play out for several months, implying that the resilience of the USD could be a defining feature for many months to come.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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