USD expected to benefit slightly from a Clinton victory - Nomura

Research Team at Nomura, suggests that as the US Presidential election approaches, uncertainty on the outcome has increased again and under Nomura’s baseline scenario, “Clinton victory without Democrat majority in the House”, JPY will be the underperformer.

Key Quotes

“Other low-yielding currencies are also likely to trade weakly against USD and commodity currencies. If the Democrats gain the majority in the House, commodity currencies’ reactions will be different, as higher US yields with risk off likely hurt these currencies. A Trump victory scenario would weaken the USD against low-yielding currencies, and USD/JPY could depreciate by around 5%.

How will DXY react to the outcome?

USD (DXY) is expected to benefit slightly from a Clinton victory, without Democratic majority in the House. USD appreciation is also likely, if the Democrats gain the majority of the House, while the result is likely to come as a surprise to the market (tail risk scenario 1). Initial volatility in the financial market is likely to be higher than our baseline scenario, and its magnitude of negative impact on the US equity market is important for FX market reactions. In contrast, under a Trump victory, DXY is expected to underperform (tail risk scenario 2). DXY underperformance so far this week seems reasonable, as the probability of a Trump victory has been increasing since last Friday.”