From ANZ's monthly FX outlook:

(In brief, bolding is mine)

  • Sentiment towards the USD remains poor
  • DXY is back to the levels seen prior to last November's US presidential election
  • Political risk premium has shifted away from the EUR towards the USD
  • Markets remain upbeat over EM Asian growth, and are taking the Fed's gradual normalisation path in their stride
  • China has sent a clear message that they will not tolerate a weakening RMB. But our view is that the export recovery in Asia will start to turn, with the risk that China's PPI could slow rapidly towards year-end
  • While we expect the USD to stage a recovery in the second half of the year, we recognise that it will not be as strong as we had previously factored in. As a result, we have revised our FX forecasts to take this into account
  • We still have a profile of USD strength returning once the US political risk premium gets priced out and the focus once again returns to the fact that the US business and monetary policy cycle is more advanced compared to Europe and Asia.

More on the USD

  • The DXY looks to have based at the levels seen prior to the November 2016 US elections
  • But technically, the downtrend remains in place and it is too soon to call the bottom for the dollar


  • The low volatility environment continues to favour risk taking, with high beta equity-linked currencies in Asia like KRW and TWD continuing to perform well, though we do not favour chasing them at current levels
  • We still expect downside risks for AUD, and express this via short AUD/CAD
  • We remain constructive on IDR, particularly following the S&P rating upgrade


  • We have lifted our EUR and GBP forecasts to factor in the weaker starting point for the USD and reduced political uncertainty over the euro area
  • We have similarly revised our USD/Asia forecasts to factor in the current negative sentiment towards the USD
  • Our AUD and NZD forecasts are unchanged