Bank of America Merrill Lynch Research discusses the USD tactical outlook and notes that its signal pattern has further evolved in a direction favorable to the dollar and now stands moderately USD-supportive overall in the near-term.
"We see evidence of USD undershoot relative to medium-term fair value, for instance against CAD and GBP. Within the context of a favorable trend in relative economic data, strongly-supportive relative monetary policy expectations and moderately supportive seasonals, we expect such gaps to be closed and for USD to rally more broadly over the shorter term," BofAML notes.
"NZD, AUD and CAD appear the most vulnerable to a renewed bout of USD strength over a shorter-term horizon. NZD is now the most vulnerable G10 currency according to our FX scorecard. For AUDUSD, risks are increasing this week. We think that the RBA will emphasize downside risks (RBA likely to concede downside risks 01 Feb 2019), which alongside recently-softer data should weigh on the Aussie, particularly as relative AU-US policy expectations are already trending in a bearish direction," BofAML adds.