US Dollar May Rise on Haven Flows as Markets Turn Defensive
US DOLLAR FUNDAMENTAL FORECAST: BULLISH
- US Dollar may be buoyed by haven flows on exodus from risky assets
- First-quarter US GDP, external data flow might inspire risk aversion
- Dour tone in corporate earnings reports to reinforce defensive mood
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The US Dollar looks likely to cement its position as a vehicle for safety-seeking capital flows in the week ahead. Mounting evidence of a downturn in domestic economic activity is likely to keep Fed policy locked in wait-and-see mode even as it sours risk appetite and stokes haven demand.
PMI surveys published Thursday put the pace of manufacturing- and service-sector growth at the weakest since September 2016. Next week’s GDP data is expected to confirm a slowdown in the first quarter. A print at 2 percent is expected but realized results may undershoot if the tenor of recent outcomes is sustained.
Meanwhile, external news-flow offers ample fodder for global slowdown speculation. The Bank of Canada will probably use the occasion of a policy announcement to worry aloud about downside risks. Incoming comments from UK Chancellor Hammond and SNB President Jordan may offer a similar message.
Turning to the data front, Germany’s IFO survey of business confidence and New Zealand trade statistics might add to the downbeat mood. Both countries are prodigious exporters and the drop in trade volumes starting around mid-2018 shows no signs of a meaningful recovery.
The first-quarter corporate earnings reporting season will continue to in tandem. Over a third of the companies making up the bellwether S&P 500 equity index are due to show results. Data from Bloomberg based on those outcomes recorded thus far points to the first period of contraction in three years.
Taken together, this seems likely to put markets in a defensive posture, with each consecutive reminder about the shaky macroeconomic backdrop helping to inspire de-risking. That might put a premium on the Greenback’s unrivaled liquidity, pushing it broadly higher.
— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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