USD Q2 2021 Fundamental Forecast

Everything in the financial markets is relative. Growth potential, rates of return, and safety are all considerations that urge capital to flow to one region or asset class over another according to prevailing conditions in the markets. Given its ubiquity, the US Dollar often finds itself a bridge to these shifting winds - for better and worse. Through the opening quarter of 2021, there were significant changes in focus from an incredible charge in retail appetite to anticipation for reopening economies after mass vaccinations to burgeoning inflation expectations that have fed into central bank normalization hopes/fears.

In these competitive matters, the US has set the pace which in turn set a bullish path for the Greenback almost from the very start of the year. If these same matters hold the market's reins, the Dollar is in a commanding position to reap the benefits. Alternatively, if a wrench is thrown into the gears and fear sudden resurfaces across the market, the same currency's latent safe haven status can readily draw global capital looking for harbour - particularly after Treasuries put in for meaningful pullback from record highs.

A GROWTH OUTLOOK TO IMPRESS

In the past year, the global economy has recovered remarkably. While we haven't fully returned to the levels of economic output registered before the pandemic swept in, the reversal of fortunes has proven as incredible as the pace of collapse that came with a forced shutdown of economies. As far as tempo goes, the United States contracted approximately -3.5 percent through 2020 - though annual growth through the fourth quarter alone was a fairly robust 4.3 percent. Looking ahead, the IMF has predicted that the world's largest economy is anticipated to grow an impressive 5.1 percent - faster than the Eurozone, Japan, the United Kingdom and a host of other developed world leaders. Further, with a pace of vaccinations against the coronavirus through the end of the quarter surpassing 100 million in the US, the country is well on its way to reopen to further boost its heavily services-based economy. With so much capital sloshing around the system and speculative appetite hardly missing a beat during the pandemic, the appeal of a relative growth advantage will draw serious appeal from international investors.

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