USD: Trading uncertainty – Rabobank

Jane Foley, Research Analyst at Rabobank, notes that the critics suggest that Trump’s plans to cut taxes at all income levels are likely to favour the highest-income households in both USD and percentage terms.

Key Quotes

“That said we see Trump’s trade policies as likely having a greater impact than his fiscal policies. The possibility of a trade war in 2017 will reduce expectations about US GDP growth and the Fed’s hiking path.

Political uncertainty is almost always currency negative. In the case of a Trump presidency, concern about the impact of potential trade conflicts reduces the likelihood of Fed tightening during the course of 2017. The combination of these two factors has weighed heavily on the USD overnight. That said, the DXY is currently trading comfortably off its low. Although the fact that Trump will not be inaugurated until the start of the New Year may dampen the initial impact of uncertainty, the USD remains vulnerable and volatility is set to remain heightened.

The safe haven JPY and CHF have been among the biggest gainers overnight. We attribute the outperformance of the JPY vs the CHF to the fact that the SNB makes no secret of the fact that intervention is a policy tool and would expect this trend to extend assuming Clinton concedes. Amongst the losers overnight have been the AUD, CAD and NZD. According to Office of the US Trade Representative, goods and services trade between Canada and the US totalled an estimates USD662.7 bln in 2015, making it one of the largest trading relationships in the world.”