The US Dollar underperformed in overnight trade, suffering steep losses against all of its top counterparts as the so-called “Trump trade” appeared to reverse course. The greenback scored the longest winning streak in three years after the US presidential election as markets speculated that grandiose fiscal stimulus advocated by the incoming administration would boost inflation and force a more aggressive Fed rate hike cycle. The move seems to be giving way across financial markets as the absence of fresh fodder to fuel the narrative opens the door for profit-taking.

The Yen outperformed as Japan’s benchmark Nikkei 225 stock index fell, stoking demand for the anti-risk currency. S&P 500 futures followed downward, hinting that a broader deterioration of risk appetite may be taking root. Some of this can probably be chalked up to the “Trump trade” reversal: the election proved supportive for sentiment. Plans for deregulation and corporate tax cuts favored by the President-elect bolstered corporate earnings expectations, pushing share prices upward. Energy sector weakness seems to have compounded selling as negotiations on an OPEC output cut continued to struggle.

The New Zealand Dollar likewise traded higher after Prime Minister John Key said a budget update to be released next week will project larger surpluses than may be expected. He added that while he expects there will be lots of debate on how to spend the extra cash, his government envisions a balanced approach that includes a spending package alongside tax cuts. The Kiwi’s response likely reflected broad-based support for NZD-denominated assets following the upbeat announcement as well as a diminished probability of further RBNZ easing against a backdrop of greater support from fiscal policy.

Looking ahead, the absence of high-profile scheduled event risk in European and US trading hours may offer room for overnight momentum to carry forward. The markets remain highly sensitive to headline risk however, be it commentary from OPEC officials or the appointment of top economic policy officials to the incoming Trump administration. Confidence-inspiring picks for leadership of the Treasury and Commerce departments as well as the US Trade Representative position may see the “Trump trade” return in force.

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