📝USD Behavioral Model Shows Fed Expectations As Main Driver: Westpac Strategy

Our behavioral model of the USD’s main drivers. Much improved sentiment toward US growth accounted for a hefty share of the USD’s rebound since mid-July (see red bars, slide four). But in recent days, more hawkish Fed expectations (purple bars, slide four) have taken over, fully accounting for the USD’s latest leg up.

That may also explain why risk conditions have shifted adversely.We suspect risk appetite was able to withstand the run up in US yields between July and Sep because it coincided with stronger data and firming growth sentiment. It’s a different post-FOMC dynamic however, with the data surprises breaking to the downside and growth nowcasts stalling. - Westpac Strategy