Tactical USD long into the Mar FOMC - Westpac

The prospect of steel and aluminum tariffs undermines what had been a decent case for a tactical USD long into the Mar 20/21 FOMC, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Markets will pivot around two key considerations – will any prospective tariffs include exemptions and who will replace Cohn as Trump’s chief advisor. Tariff exemptions and a mainstream probusiness adviser should trigger a relief rally, and vice versa.” 

“Beyond that, longer term reservations about the USD persist: three Fed hikes are now discounted into year’s end. Any  further Fed-driven USD upside is thus contained to just one more hike in 2018 – the bar for five hikes is impossibly high. Protectionist rhetoric is unlikely to ease anytime soon either and may if anything may escalate into US midterms.”