USD: More legs to the yield fuelled rally - Westpac

US yields are up sharply since Trump’s win (+60bp) but historical analogues (taper tantrum & QE2) suggest they could rise at least +100bp over 6-12mths and in short, there’s more legs to the yield fuelled USD rally expects Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Another HIA style repatriation of foreign earnings, a more hawkish Fed as Trump fills 2 governor vacancies in 2017 as well as the chair and vice-chair in 2018, and a rolling run of 2017 European political risks (Dutch, German and French elections), should all sustain USD strength well into 2017.”

“But positioning suggests the USD is well owned, a Dec Fed hike is fully priced, our US surprise index suggests all the good news is priced in too and we are in a fiscal policy news vacuum likely until Trump’s 20 Jan inauguration. USD index could ease 1-2% before the next leg up.”