FXStreet (Delhi) – Richard Franulovich, Research Analyst at Westpac, suggests buying Dollar Index on dips as yield spreads within the DXY basket should continue to grind in favour of USD in Q1, with markets complacent on the Fed outlook.
Key Quotes
“The USD is likely to draw fresh yield support early in 2016 as markets move to fully price in a second follow-up Fed hike as soon as their 16 March 2016 meeting. That would be substantially sooner than expected – a second +25bp Fed rate hike is not fully discounted by interest rate markets until early Q3 2016 while the probability of a March 2016 rate hike is 40%.”
“A potentially mild winter, if long range weather forecasts are to be believed, should flatter Q1 growth after very inclement conditions trashed Q1 growth in the last couple years.”
“That said, March Fed rate hike odds are more likely to rise than fall against that background. But even without these factors at play, underlying trends favour more yield-based support for the USD anyway.”
“Buy the USD index into 96-97, if seen in the next few weeks, targeting a solid break through the key 100.0 level and new highs closer to 105 into Q1 2016.”
(Market News Provided by FXstreet)