USD: Under pressure from politics - Westpac

Tim Riddell, Research Analyst at Westpac, explains that the unwinding of Trump trades as hopes faded for early action has transformed into risk aversion as political tensions with Congress have materially escalated.

Key Quotes

“What had been a political distraction for markets, especially equities, has now become a disruptive. If short lived, risk appetite will likely resume. However, the near term impact has triggered a sharp lift in market volatility as stocks have finally followed the unwinding of USD and US yields. This is further driving yields and USD lower.”

“Although the impact on hard data would only occur if disruption becomes truly destructive of US growth, sentiment indicators are likely to follow the slide in equities and keep USD under pressure.”

“A continuation of the sharp turn in risk appetite could weigh on USD such that the DXY index may test the lower end of its election day range (95.88-98.70).”