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16 May 2014
US dollar recovery will gain traction in H2 2014 - BNZ
FXStreet (Bali) - Raiko Shareef, Currency Strategist at BNZ, notes that the USD should start to recover from its depressed levels as the years moves forward.
Key Quotes
"We retain conviction in our view that the US dollar recovery will gain traction as 2014 progresses and into 2015. At the same time, our mid-2014 forecasts for most G10 pairs now look to be a stretch. This follows the very poor performance of the US economy in the first quarter of the year, related stability in US yields across the maturity spectrum and declines in market volatility that have accentuated the ‘grab for yield’."
"In currencies, nowhere has this been more evident than in the AUD, which since its 2014 (24 Jan) low against the USD of 0.8660, has appreciated against all other G10 currencies – by 7.3% against the USD and elsewhere from anywhere between 9.0% (SEK) and 2.3% (NZD)."
"Incoming US data has – with the exception of housing market indicators - shown clear signs of improvement since mid-April and the evidently weather-ravaged weak Q1. Yet market conviction that this will translate into a sustained period of trend, or above trend growth, sufficient removal (in the Fed’s view) of labour market slack and a pick-up in inflation readings sufficient to given the FOMC confidence in commencing a tightening cycle around mid-2015, remains low."
"This will need to change as one prerequisite for a sustained period of USD appreciation. We will also likely need to see market volatility levels rising – something which historically has gone hand in hand with dollar appreciation (most recently during last year’s Fed ‘taper tantrum’)."
"While any evidence of rising US inflation pressures (directly or through signs of higher wages growth) could prompt a rapid reversal in market thinking about Fed policy timings and which could break FX markets out of their current low-volatility torpor and poor trading volumes, we doubt this now occurs before mid-year. Accordingly we are shaving our end Q2 and end Q3 forecast modestly, while by and large maintaining our forecasts for end 2014 and beyond."
Key Quotes
"We retain conviction in our view that the US dollar recovery will gain traction as 2014 progresses and into 2015. At the same time, our mid-2014 forecasts for most G10 pairs now look to be a stretch. This follows the very poor performance of the US economy in the first quarter of the year, related stability in US yields across the maturity spectrum and declines in market volatility that have accentuated the ‘grab for yield’."
"In currencies, nowhere has this been more evident than in the AUD, which since its 2014 (24 Jan) low against the USD of 0.8660, has appreciated against all other G10 currencies – by 7.3% against the USD and elsewhere from anywhere between 9.0% (SEK) and 2.3% (NZD)."
"Incoming US data has – with the exception of housing market indicators - shown clear signs of improvement since mid-April and the evidently weather-ravaged weak Q1. Yet market conviction that this will translate into a sustained period of trend, or above trend growth, sufficient removal (in the Fed’s view) of labour market slack and a pick-up in inflation readings sufficient to given the FOMC confidence in commencing a tightening cycle around mid-2015, remains low."
"This will need to change as one prerequisite for a sustained period of USD appreciation. We will also likely need to see market volatility levels rising – something which historically has gone hand in hand with dollar appreciation (most recently during last year’s Fed ‘taper tantrum’)."
"While any evidence of rising US inflation pressures (directly or through signs of higher wages growth) could prompt a rapid reversal in market thinking about Fed policy timings and which could break FX markets out of their current low-volatility torpor and poor trading volumes, we doubt this now occurs before mid-year. Accordingly we are shaving our end Q2 and end Q3 forecast modestly, while by and large maintaining our forecasts for end 2014 and beyond."