Via Goldman on the US dollar:
USD: Risks to bearish consensus in focus.The Biden transition team hasannounced plans for a $1.9tr fiscal stimulus, more than our economists hadexpected. Although they do not expect the full amount to become law, theyraised their stimulus assumptions on the news (to $1.1tr from $750bn) andhaveupgraded their US GDP forecasts. As we notedlast week, our research suggeststhat US fiscal easing and/or bear steepening in the Treasury curve should notturn the bearish Dollar trend. However,greater optimism about US growth hascreated a more two-way debate in FX markets about the outlook for thegreenback this year. If not US fiscal easing, what are the risks to our negativeDollar views? We see three main sources of uncertainty. First, the vaccinationprocess: our bullish global growth forecasts are based on the assumption thatwidespread vaccinations will help end the Covid crisis, and allow many sectorsof the world economy to reopen. If vaccines prove less effective than we expectand global economy stumbles, the “safe haven” Dollar would likely appreciate.Second, the Fed’s commitment to low real rates: the FOMC has provided clearand (in our view) credible guidance that it will not raise the funds rate untilinflation has reached 2% and is on track to exceed it—or, in other words, thatreal short term interest rates will benegative2% or lower before nominal ratesstart moving up. Earlier-than-expected funds rate hikes could also support theDollar. Third, US equity market outperformance: if US equity marketssubstantially outperform other regions over the coming year, Dollar depreciationcould slow or possibly reverse. For now we remain comfortable with ouroptimistic global growth views and continue to expect broad Dollar weakness in2021; we stay long CAD and AUD vs USD within G10.
I agree with that for now. For the Australian dollar, it is more complex with the added key risk being a sharper than expected slowing of post-pandemic China. Though I still see that as largely a 2022 story for now.
Goldman sees the AUD at 81 cents in a year.
