Politics, public spending and inflation – Rabobank

The results of the US elections will clearly determine the course of fiscal policy in the US. A Trump victory is widely expected to extend the US’s large budget deficit by more than a Harris one, though the extent will also clearly depend on the make-up of Congress, Rabobank’s Senior FX Strategist Jane Foley notes.

Trump means Fed to stop cutting cycle by February

“In Rabobank’s view a Trump win could result in the Fed’s rate cutting cycle being over by January. This suggests a stronger outlook for the USD next year which would likely be bolstered further by a red wave. Beyond 2025, the inflationary implications of trade tariffs will be complicated by the detrimental impact that they are likely to have on growth in the US (and beyond).”

“A Harris victory in the US election may also add to the US budget deficit, though a divided Congress could limit fiscal policy changes and leave the Fed’s rate cutting cycle on course. Consequently, a Harris presidency is likely to trigger a selloff in the USD near-term, though the outlook for 2026 is less clear.”

“We will be re-evaluating our USD forecasts following the results of the US election. Either way, we continue to favour buying AUD/NZD on dips, although a less dovish Bailey on November 7 could trigger some upside for GBP/AUD. The Eurozone is attempting to reclaim fiscal prudence which should reduce inflationary hurdles for the ECB. Assuming risk appetite holds, we also see upside potential for AUD/EUR towards 0.62.”