DXY likely to trade in 99-103 range in the months ahead, says Scotiabank

The dollar index is expected to trade in the range of 99-103 in the months ahead, while the greenback may pair some gains against the EM Asian currencies unless the Federal Reserve delivers a hawkish tone at its June monetary policy meeting.

President Xi Jinping and US Secretary of State Rex Tillerson both said on Sunday that China and the US could have a “cooperative” relationship. Xi and Trump are likely to meet in Florida on 6-7 April. Meanwhile, the USD may rebound intermittently as some regional currencies such as the TWD and THB have been technically overbought, Scotiabank reported.

The USD is likely to advance against EM Asian currencies in May on account of either a potentially hawkish Federal Reserve talking up the chance of a June rate hike or intensifying flight-to-quality demand possibly arising from the French presidential election set for April 23 and May 7.

"In June, the USD may pare some gains versus EM Asian currencies unless the Fed delivers a hawkish rate hike at its June gathering. DXY Index is expected to trade in a range of 99-103 in the months ahead," the report said.

A third 25 basis points interest rate increase in 2017 forecasted by the Fed in the so-called “dot plot” updated last week hasn’t been fully factored in, offering potential for rises in DXY Index in the second half of this year.

"Meanwhile, we bear in mind that an excessively strong dollar is not in the Trump team’s interest. Hovering market fears over the Trump administration’s stance will prevent the dollar from strengthening significantly anytime," the report added.