ANZ: A Trump Presidency would be bullish for the US dollar

Photo: David Becker/ Getty.

After a week in which markets have been focused on the actions of central banks, all attention in the week ahead will shift to the US Presidential race.

In particular, there’ll be plenty of eyes on the first Presidential debate between Democratic nominee, Hillary Clinton, and Republican nominee, Donald Trump. It’s going to be a doozy, arriving on Tuesday morning in Australia.

As Chris Weston, chief market strategist at IG Markets, mused earlier today on TV, we’re all about to become political experts.

That remark was, of course, said in jest, but there’s an element of truth about it, particularly as the debate has the potential to be market moving.

Daniel Been, head of FX strategy at ANZ, is one analyst who believes that it will, suggesting in a note released earlier this week that the result “could have important implications for how markets price political risk in the US”.

“In recent weeks Republican nominee Trump has narrowed in the polls, pulling ahead in key states like Ohio,” says Been. “To date, this has been discounted by the markets as pundits explain away the surge on single factors.”

While investors have largely discounted the likelihood of a Trump victory in this November’s election, Been warns that should this momentum in the polling results remain following the debate “the market will likely have to start thinking more seriously about how to price a Trump presidency into the USD”.

If that was to take place, Been, mirroring the views of almost everyone in financial markets, believes it will create some serious levels of volatility. However, putting him at odds with some views, Been believes that a Trump victory would be beneficial for the US dollar, rather than detrimental.

“Our broad assessment is that a Trump victory would be positive for the USD,” he says.

“While both Clinton and Trump have expansionary fiscal plans which should support the USD, Trump’s agenda adds additional risks around both global trade and geopolitical dynamics.”

As we all learnt in late June, when an unexpected political outcome prevails, things in markets can go from looking very good to horrifyingly bad in the space of just a few seconds.

Brexit. GBP/USD 1-Minute Tick Chart. June 23, 2016. Source: Thomson Reuters Eikon

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