Investing.com — Over the past month, major changes in U.S. policy have shifted market expectations, going beyond the Federal Reserve’s impact on the U.S. dollar. Initially, the U.S. dollar appeared to have peaked, especially as U.S. economic data slowed and the Fed prepared for an easing cycle.
The US presidential election on November 5 appears to be far enough away to allow the Federal Reserve’s actions to dominate market movements.
However, recent political developments and increasing odds in Donald Trump’s favor have prompted the market to price in this major event earlier than expected, Macquarie analysts said in a note.
As a result, any Fed-led weakness in the US dollar is now expected to be short-lived and shallow, particularly affecting interest rate-sensitive pairs such as the US dollar, which could fall to 142 by December, according to analysts.
The US dollar is expected to rise broadly, particularly affecting currencies and economies exposed to a potential Trump presidency, such as the Chinese Yuan (CNY) and Taiwan Dollar (TWD).
Election Scenarios and Forex Forecasts:
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Democrats’ victory: A Democratic victory is likely to lead to a broad-based and modest weakening of the US dollar, driven by interest rate cuts by the Federal Reserve. Previous exchange rate forecasts are expected to remain mostly valid with minor updates.
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Trump’s victory: A Trump victory could have a major impact on foreign exchange markets. Higher US tariffs on Chinese exports could send the Chinese yuan down 5% to 7.50 before Inauguration Day on January 20.
The Australian dollar could fall to 64 cents on the economic fallout. The euro could fall to 1.06 by December and 1.05 by mid-2025 if global US tariffs and potentially deeper cuts by the European Central Bank materialize.
Other FX topics:
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GBP: The pound is expected to stabilize after the UK general election on July 4, with no further gains for the pound at the moment.
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scoundrel The Canadian dollar could rise towards 1.40 by December as the Bank of Canada continues its monetary easing.
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: An early interest rate cut by the Reserve Bank of New Zealand (RBNZ) is expected to push the AUDNZD pair to the 1.14 level by December.
latin america:
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CLP: The Chilean peso (CLP) is seen as structurally strong due to the importance of the country’s export basket in the energy transition.
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Mexican peso: The Mexican Peso (MXN) is expected to perform well in any US election scenario.
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BRL and COP: The Brazilian Real (BRL) and Colombian Peso (COP) could face challenges due to ongoing concerns over fiscal responsibility in the second half of 2024.
