Westpac says the US dollar’s gains are not growth-driven, given shutdown risks to consumption and investment.
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Europe and Asia ex-Japan are showing continued resilience, contrary to the dollar’s appreciation.
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Japan’s leadership change may bring looser policy and a weaker yen, supporting USD/JPY.
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China’s renminbi is seen as Asia’s relative outperformer amid steady growth and expected stimulus.
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The US dollar’s rise this month is not being driven by stronger growth expectations at home but by relative developments abroad, according to a new Westpac analysis.
The bank said the prolonged US government shutdown is likely to dampen household consumption and business investment, undermining the case for domestic-led currency gains. Instead, global policy shifts and relative performance across regions appear to be doing the heavy lifting for the greenback.
Westpac noted that Europe and Asia (excluding Japan) have both shown resilient activity and diminishing downside risks, a backdrop that would typically weaken the dollar rather than support it.
However, Japan remains an exception. The appointment of Sanae Takaichi as Prime Minister, if it comes, is widely seen as paving the way for easier monetary policy and a softer yen, indirectly underpinning the dollar’s strength.
In contrast, Westpac highlighted China’s renminbi as the best-positioned Asian currency, saying the country has managed 2025’s uncertainty relatively well and is expected to step up economic support measures in coming months.
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Westpac’s analysis suggests the greenback’s rally may be more about relative policy expectations than fundamentals, with Japan’s dovish tilt offsetting resilience in Europe and Asia. The call implies limited near-term downside for USD/JPY but room for CNY outperformance if Chinese stimulus accelerates.
This article was written by Eamonn Sheridan at investinglive.com.