the known knowns and the known unknowns - ANZ

Analysts at ANZ  noted the the market remains transfixed by the new Trump administration and its policy directives. 

Key Quotes:

"For now the impact that it can have is very unclear – though signs suggest that global trade will be less expansive, and the spectre of protectionism has risen. We think that these uncertain outcomes are well accounted for in the USD for now. Our model is indicating that the USD has run ahead of fundamentals and is at risk of reversal. Meanwhile, more traditional drivers of the USD, such as global growth, liquidity and the outlook for volatility are also pointing to a weaker USD trend in the near term. When balancing these ‘known’ drivers against the ‘unknown’ policy environment ahead we think that there is a risk of further short-term USD weakness.

Themes: 

The DXY remains in a medium term up-trend, but in the near term it has run too far. As such, for the first time in a while we are looking for a bit of strength in some of the cyclical currencies. 

In China we expect stability, while other Asian currencies may see rising portfolio flows driving some gains. This environment will also support the AUD and NZD, though temporarily. 

The EUR and GBP will remain complicated by political premia. EUR is facing a raft of elections which will bring heightened uncertainty, while for the GBP it seems that the bad news is in the price for now – but negotiations are yet to begin."