USD: Faith lost due to protectionism? - NBF

Analysts at NBF note that the trade-weighted USD is depreciating at the fastest pace in a decade and that despite a strong U.S. economic performance that is encouraging the Fed to tighten monetary policy.

Key Quotes

“Foreign investors could be apprehensive about growing protectionism in Washington and may not be as keen to finance mounting U.S. deficits which have historically been correlated with a weakening greenback. Even world central banks seem to be losing faith in the big dollar, with their USD share of allocated FX reserves now at a four-year low. All told, the outlook for the U.S. dollar is not rosy.”

“Who’s going to benefit from USD woes? It’s the euro according to speculators who increased their long positions on the common currency to a new record in March.”

“Despite the pick-up in world oil prices, the Canadian dollar is among the worst performing major currencies this year.”

“Investors seem to be concerned about NAFTA renegotiations, the housing market (due to B20 regulations) and the sustainability of consumption growth (due to the heavy debt load of households). But if, as we expect, this fear factor diminishes over the coming months, USDCAD could be heading back towards 1.20.”