Synopsis:

As the November 5 US presidential election approaches, Credit Agricole analyzes the potential impacts on the US Dollar (USD), noting improving odds for a Donald Trump victory and the subsequent market reactions.

Key Points:

• The rising likelihood of a Donald Trump win has led to renewed interest in "Trump trades," contributing to a rally in the USD.
• The key considerations for FX investors are the extent of the potential USD gains from a Trump victory versus the possible downside if Kamala Harris wins.
• Despite the ongoing uncertainty surrounding the election outcome, FX Positioning data indicates that investors are not heavily long on the USD.
• Recent USD gains are partially attributed to a reassessment of the market’s dovish Federal Reserve outlook, spurred by positive US economic data surprises.
• Global corporates appear to have completed their FX hedging programs for the year, reducing the typical year-end USD-selling pressure.
• A Trump victory, along with a Republican majority in Congress, could lead to a stronger USD as more investors may engage in "Trump trades," while subdued corporate selling could support the currency.
• A Harris victory is unlikely to trigger a significant USD sell-off, in contrast to the decline seen after Joe Biden's win in 2020, due to the USD’s enduring rate advantage and the resilience of the US economy.

Conclusion:

Credit Agricole suggests that the USD could experience significant upward momentum if Trump secures the presidency, while the impact of a Harris victory would likely be muted, reinforcing the USD’s strong positioning in the current market context.