What’s Next For The Dollar?

The US dollar steamrolled its peers since early October. After breaking out above its 200-day moving average, it is now fast approaching recent highs. Multiple factors drove this rally, among them are the stronger-than-expected US economic data, weaker data overseas, and Trump’s victory.

In the very near-term, we see further dollar strength. The dollar is a momentum currency, and positioning is neutral while sentiment is not extended either. Furthermore, deregulation initiatives, tariffs weakening overseas growth, and loose fiscal policy will boost dollar sentiment. This policy mix will remain the market’s assumption until more clarity emerges on the policy agenda and its sequencing.

In the long-run, the US dollar is expensive, as are US assets. The current rally is thus likely to be the last leg of a structural bull market in place since 2011. It will end as the Trump administration aims to weaken the currency to rebalance trade.