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18 Dec 2015
Plenty of run left in the USD upswing – Deutsche Bank
FXStreet (Delhi) – Research Team at Deutsche Bank, suggest that the multi-year strong USD cycle should extend for at least another 2 years, with a further 10% appreciation in the real broad USD TWI.
Key Quotes
“In macro terms, how 2016 shapes up will be heavily influenced by whether the main macro driver is the Fed or China. If Fed tightening is the driver, USD gains are seen as likely to be slow and broad-based, spread fairly evenly between G4 majors, commodity FX and EM FX. If on the other hand, China, particularly China FX policy becomes a source of instability, USD gains will be heavily concentrated in commodity and EM FX, while the G4 majors all outperform.”
“2016 year-end forecasts have changed slightly, while end-2017 forecasts are largely unchanged. EUR/USD is now forecast at 0.95 at the end of 2016, up from our original 0.90 forecast, in recognition of: i) some prospective impact that risk factors like China will have in restraining Fed expectations holding back the USD versus the majors as described above; and, ii) EUR/USD is set to end 2015 slightly above our original projections, setting a higher EUR/USD starting point for future forecasts. In contrast to EUR/USD, greater EM related terms of trade and credit risks have added marginally to prospective commodity FX weakness, where cycle lows for AUD/USD, NZD/USD are forecast at 0.58 0.50 respectively, and a USD/CAD peak is now seen at 1.45. Lastly, we expect the strong USD ‘rotation theme’ to continue, with the GBP, the Swissie, and NJA FX proving less resilient to USD strength in 2016.”
Key Quotes
“In macro terms, how 2016 shapes up will be heavily influenced by whether the main macro driver is the Fed or China. If Fed tightening is the driver, USD gains are seen as likely to be slow and broad-based, spread fairly evenly between G4 majors, commodity FX and EM FX. If on the other hand, China, particularly China FX policy becomes a source of instability, USD gains will be heavily concentrated in commodity and EM FX, while the G4 majors all outperform.”
“2016 year-end forecasts have changed slightly, while end-2017 forecasts are largely unchanged. EUR/USD is now forecast at 0.95 at the end of 2016, up from our original 0.90 forecast, in recognition of: i) some prospective impact that risk factors like China will have in restraining Fed expectations holding back the USD versus the majors as described above; and, ii) EUR/USD is set to end 2015 slightly above our original projections, setting a higher EUR/USD starting point for future forecasts. In contrast to EUR/USD, greater EM related terms of trade and credit risks have added marginally to prospective commodity FX weakness, where cycle lows for AUD/USD, NZD/USD are forecast at 0.58 0.50 respectively, and a USD/CAD peak is now seen at 1.45. Lastly, we expect the strong USD ‘rotation theme’ to continue, with the GBP, the Swissie, and NJA FX proving less resilient to USD strength in 2016.”