US: Yield spreads trending in the USD’s favour - Westpac

In view of the Richard Franulovich, Analyst at Westpac, constructive backdrop is still in place for the USD, for now as the DXY weighted 2yr yield spreads continue to steadily grind in the USD’s favour, hitting fresh 10yr+ highs daily amid hawkish Fed March hike signals and a steady run of strong data.

Key Quotes

“Yield spreads can fuel yet further USD gains going forward, with market pricing of +63bp in Fed hikes in 2017 still shy of the Fed’s +75bp median. Yellen (Fri) and payrolls next week key risks.”

“Suspect USD will falter in summer when it becomes clear that meaningful tax reform will run afoul of challenging political realities: even if Senate filibuster risks can be avoided by using the 2018 reconciliation bill (where only a simple majority is needed) great swathes of the Republican party remain lukewarm on infrastructure, border adjusted taxation and funding spending plans by gutting government agencies.”