Ecnomists at Westpac continue to view the US dollar as near its peak for this cycle. Therefore, the US Dollar Index (DXY) is forecast at 97.4 in December 2022.

Fiscal unwind, declining real wages and higher interest rates are a threat for US growth

“Considering the unwinding of fiscal support and material decline in real wages experienced over the past year, as well as the rapid tightening of monetary policy now upon them, risks for US growth are likewise becoming aggressively skewed to the downside.”

“The USD is close to a peak, with a downtrend likely to set in from July once the FOMC has delivered a further 100bps of federal funds rate increases and quantitative tightening commences.” 

“On a DXY basis, we look for the US dollar to fall from 99.0 at June to 97.4 in December 2022 then 95.3 in December 2023 as US growth first falls near trend in late-2022 then below trend in 2023.”