Occam’s Razor to FX: The Cyclical / Structural Framework | Research

We refresh our framework for the medium to longer-term outlook for FX. We deliberately exclude tactical inputs and explicitly focus on FX drivers on a 1-year forward basis.
Carry and valuations are key FX drivers; however, by including the capital cycle, current account, fiscal policy, and credit growth, we offset the shortcomings of carry and valuations.
To understand how different FX drivers interact and if there are implicit dependencies, we leverage random forest data science techniques to highlight interaction features.
Today, the model output suggests investors should retain a medium-term bullish US dollar outlook.