Core USD long remains in tact

Policy divergence and US growth outperformance are likely to underpin the dollar, even if downside risks in China are realized. 

"EUR/USD are forecast at 1.05 for year-end 2015 after the Fed held, but still parity is seen at end-Q1 2016. Year-end USD/JPY forecasts remain at 125, but GBP-USD is forecasted lower to 1.48 for the year end and  1.47 for 2016 along with other euro crosses. In the dollar bloc, we maintain our USD/CAD forecasts, but now expect AUD/USD to finish 2015 and 2016 at 0.69 and 0.65, respectively", says Bank of America. 

A significant CNY devaluation by Chinese authorities would be a significant shock not only to financial markets but also inflation. Such a scenario would make it difficult for the Fed to increase rates, muting the policy divergence theme we expect to strengthen the USD.

"On the emerging market side, core EM Asia FX forecasts are the same in CNY and INR, but in LatAm a higher USD-BRL profile but a lower USDMXN one are manintained for now", added Bank of America.