Richard Franulovich, the head of FX strategy at Westpac, suggests the Fed’s decision to rebuild their balance sheet shouldn’t upset the USD much as short-dated bill purchases - to facilitate implementation of existing monetary policy - is a very different beast from large scale ECB/BoJ QE aimed at boosting credit, cutting risk premiums and lifting growth.

• “US-China trade talks unlikely to yield much, visa bans and blacklistings raising the hurdle for even a modest interim mini-deal. Trade and supply chain uncertainty likely extends deep into 2020. That will sap US and global growth yet further and compel more Fed cuts. Powell did not push back on expectations for an Oct rate cut and if anything stressed prospective downward revisions to employment trends.
• But USD should remain resilient and DXY support at 98-98.5 likely holds. Rates markets already fully price a 31 Oct Fed cut and the global economy is not faring any better. A more protracted easing cycle will weigh on the USD but past cycles suggests there are long lags at play and it won’t be a negative story for the USD until well into 2020.”