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Investing.com -- The rising prospect of a Democratic victory is forcing traders to unwind "Trump trades" including the bid in the dollar, Macquarie says, as Democratic presidential candidate Kamala Harris continues to conjure up more "Kamala-mentum" in the race for the White House.
"We think the rising prospect of a Democratic victory in the presidential race caused an unwind of 'Trump trades', among which was the stronger USD view," strategists at Macquarie said in a Tuesday note as the dollar continued to weaken.
A strong dollar and Trump's potential election victory have become closely linked, as the former president's proposed core policies—including tax breaks, restrictions on immigration, and tariffs—would be "deemed to be more inflationary, thereby keeping policy rates higher than otherwise," they said.
More dollar pain could follow next week, the strategists added, if Harris is successful in elevating her platform at the National Democratic Convention this week.
"A post-convention bounce in Kamala Harris's polls next week could thus even weaken the USD a bit more," they added.
The "Kamala-mentum" unleashed in the wake of President Joe Biden stepping down and backing Harris has been driven by a "more effective campaign than the one waged by President Joe Biden."
Harris' expedited move to the top of the Democratic ticket has also taken the Trump team by surprise, and given "them fewer ways to attack Harris than he had for Biden," Macquarie said.
"With Trump's attacks neutered, this has likely caused the level of enthusiasm among his base to diminish too," it added.
Beyond the politics, however, the dollar's weakness since early August is puzzling, Macquarie says, as recent economic data—including retail sales, initial claims, and services ISM—has "pointed to renewed relative strength in the US, following worries about a lapse into recession during late July and early August."
