Synopsis:
Goldman Sachs outlines potential scenarios for the USD in light of the upcoming US elections, emphasizing the impact of tariffs on exchange rates.
Key Points:
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Valuation Support:
Recent developments continue to bolster the pillars supporting the Dollar's high valuation over the past decade. -
Republican Sweep Scenario:
A Republican sweep is expected to elicit the strongest Dollar response, as it could lead to significant tariff increases alongside domestic tax cuts. -
Divided Government Outcomes:
A narrower, smaller Dollar rally is anticipated if a divided Republican government is formed. Conversely, a Democratic sweep or divided Democratic government could initially weaken the Dollar as markets adjust to the potential for more significant changes in tariff policies. -
Impact on Sensitive Currencies:
Following these market movements, currencies sensitive to China and US policy, such as MXN, CNH, KRW, EUR, and AUD, are likely to experience quick relief.
Conclusion:
The outcome of the US elections will play a crucial role in shaping the USD's trajectory, with varying implications depending on the election results and their influence on tariff policies.