Macquarie says the prospect of a Democratic win is forcing traders to back away from “Trump trades” including dollar bidding, as Democratic presidential nominee Kamala Harris continues to bring more of a “Kamala mentality” to the White House race.
“We believe the prospect of a Democratic victory in the presidential race has caused a pullback in Trump trades, including a stronger outlook for the US dollar,” Macquarie strategists said in a note on Tuesday.
A strong dollar and a potential Trump election victory have become closely linked, they said, as key policies proposed by the former president — including tax breaks, immigration restrictions and tariffs — “will be seen as more inflationary, thus keeping interest rates higher than they otherwise would be.”
More pain for the dollar could follow next week, if Harris succeeds in raising her platform at the Democratic National Convention this week, strategists added.
“A surge in Kamala Harris’s poll numbers after next week’s convention could weaken the US dollar a bit more,” they added.
The “Kamala mindset” that was unleashed in the wake of President Joe Biden’s resignation and his endorsement of Harris was driven by “a more effective campaign than President Joe Biden ever ran.”
Harris’s rapid move to the top of the Democratic ticket also caught the Trump team by surprise, giving them “fewer ways to attack Harris than they had with Biden,” Macquarie said.
“Trump’s decline in attacks likely led to a decline in enthusiasm among his base as well,” she added.
But beyond politics, the dollar’s weakness since early August is puzzling, says Macquarie, as recent economic data — including retail sales, initial claims and the services PMI — “point to renewed relative strength in the US, following concerns about a slide into recession in late July and early August.”