USD on a strong footing – Westpac

Generic EM weakness (Turkey & China the front-burner concerns for now) is bleeding into G10 weakness vs the USD and a wider risk reduction across global markets, according to Richard Franulovich, Head of FX Strategy at Westpac.

Key Quotes

“The move potentially has a lot further to run judging by very elevated EM FX implied vols vs the G7.”

“Concurrently, US data continues to portray a rock-solid growth trajectory and little to no ill-effects of simmering trade tensions; the NAHB’s small business index for July hit 35 year highs, the NY Fed Empire survey firmed more than expected in August to its highest levels this year and Q3 nowcasts are hovering around 3%.”

“EM weakness and ongoing solid US growth should sustain the USD.”

“September brimming with risks: the administration will make a call on the proposed 25% tariff on $200bn in Chinese exports and US political risk makes a comeback; midterm fever usually takes hold from Labor Day (Sep 2) and Trump’s govt shutdown threats come to a head with appropriation bills keeping govt open expiring Sep 30.”