Synopsis:
Despite recent weakness, ANZ argues the USD has not broadly sold off outside of Europe. They caution that a global growth slowdown triggered by tariffs could ultimately be USD-supportive, especially against weaker currencies like AUD and NZD.
Key Points:
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The USD sell-off has been concentrated in European crosses (EUR, SEK, CHF, GBP), while Asian FX and commodity currencies remain weak.
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Trade-weighted USD is less downbeat than DXY suggests, as CNH and CAD have held up.
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Historically, weaker global growth often strengthens the USD, owing to its role as a safe haven and trade settlement currency.
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In 2018, smaller US tariffs slowed global growth and pushed the USD higher—a similar dynamic could repeat.
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ANZ's Global Leading Indicator (GLI) shows global manufacturing was already soft, increasing the risk of a tariff-driven global slowdown.
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AUD and NZD are especially vulnerable, having already underperformed, with little insulation from further global headwinds.
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Near-term, USD risks are tilted slightly lower on weak US data. But medium-term strength is possible if global growth sags more broadly.
Conclusion:
ANZ sees limited near-term downside for the USD but flags that a global growth shock from tariffs may reassert USD strength, particularly against already weak currencies like AUD and NZD. A USD rebound remains plausible in the coming quarters.
