President Trump, Year Two: What's Next on the Agenda?
Lead — The Trump administration's post-tax reform political agenda is likely to experience delays in legislative progress, especially concerning infrastructure and immigration, according to Alec Phillips of Goldman Sachs. However, a focus on financial deregulation remains probable as the administration braces for heightened trade tensions with China stemming from international investigations. Per the full note from Goldman Sachs Research, the implications for financial markets could be substantial as these priorities unfold, particularly in the FX space influenced by policy announcements and global trade dynamics.
What the desk is arguing
The Trump administration is navigating a complex political landscape as it shifts focus from tax reform to other priorities. According to Alec Phillips, chief U.S. political economist at Goldman Sachs, key areas such as infrastructure investment and immigration reform may face challenges due to a looming mid-term election. However, movement on financial deregulation is expected to gain traction this year, which could shift market sentiment.
Moreover, the potential resurgence of trade tensions with China will be a significant focus for the administration as it responds to ongoing international trade investigations. These trade dynamics will likely influence FX volatility, particularly for currencies sensitive to U.S.-China relations, such as the Australian dollar and Canadian dollar.
Where it sits in our coverage
The current consensus forecast for USD/CAD sits at 1.075, with individual firm targets ranging across different views: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective on the balancing act of Trump’s policy priorities aligns with jpmorgan's bullish stance while contrasting with bofa's more cautious outlook, indicating that the desk's interpretation may lean towards the upper bound of the range.
How other firms see it
Firms aligning with this strategic view include jpmorgan, which sees potential for further dollar strength, whereas bofa maintains a contrary stance, anticipating a weaker dollar scenario.
Trade-sensitive currency pairs such as AUD/USD and USD/JPY should also be monitored, as they may react to shifts in U.S. trade policy and domestic regulatory changes that emerge from the administration's focus on deregulation and trade relations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Post-tax reform agenda expected to focus on financial deregulation.
- 02Infrastructure and immigration reforms may delay due to upcoming elections.
- 03Renewed trade tensions with China likely to impact market sentiment.
- 04FX traders should watch for reactions in AUD/USD and USD/JPY.
Market implications
Traders should be alert to how any movement on deregulation proposals influences USD strength, particularly against trade-sensitive currencies like AUD and CAD. Close attention to upcoming speeches from administration officials may provide further clarity on policy directions.
Risks to this view
The outlook could be invalidated if significant legislative progress is made on infrastructure or immigration that shifts the focus away from financial deregulation. Additionally, any escalated trade conflicts with China that lead to a weakening U.S. dollar could alter market dynamics drastically.
Now over the hurdle of tax reform, the question becomes which political priorities the Trump Administration will tackle next. Alec Phillips, chief US political economist for Goldman Sachs Research, says the potential for a mid-term election shakeup is likely to delay legislative progress on infrastructure and compromise on immigration, but he does expect movement on financial deregulation this year. Trade tensions with China could also re-heat as the Administration responds to the results of several key international trade investigations.
This podcast was recorded on January 22, 2018. All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced, in whole or in part.
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