Exchange Rate Forecasts 2014: Yen, Canadian and Australian Dollars from Commonwealth Bank
By Rob Samson
Further, patchy domestic economies and a reduced yield advantage should also weigh on the AUD and CAD vis‑à‑vis the USD.
Concerning the Japanese Yen, structural changes in Japan’s current account have been more pronounced than previously thought and this should continue to weigh on the JPY over coming years.
Richard Grace, head of currency strategy at Commonwealth Bank of Australia outlines the changes to his bank's forecasts:
Note: Our FX quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.
The Japanese Yen, Australian and Canadian dollar are to weaken substanitally in 2014 according to forecasts at Australia's Commonwealth Bank. This despite recent counter rallies witnessed in the AUD rate in February.
The changing nature of global growth back towards advanced economies is less supportive for commodity currencies such as the Canadian and Australia dollars warns an exchange rate forecast note issued by Australia's Commonwealth Bank.Further, patchy domestic economies and a reduced yield advantage should also weigh on the AUD and CAD vis‑à‑vis the USD.
Concerning the Japanese Yen, structural changes in Japan’s current account have been more pronounced than previously thought and this should continue to weigh on the JPY over coming years.
Richard Grace, head of currency strategy at Commonwealth Bank of Australia outlines the changes to his bank's forecasts:
Note: Our FX quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.
Chinese and emerging market growth downgraded for 2014
We have made some minor adjustments to our previously published global growth forecasts. The small 0.1 ppt upgrade to our global growth forecast for 2014, from 3.4% to 3.5% (and no change to our 2015 forecast for 3.6%), masks larger changes at the individual economy level.
We have downgraded our forecasts for emerging economies (particularly China) and upgraded our forecast for developed economies (particularly the US and the UK). The downgrade to our 2014 China GDP growth forecast from 7.9% to 7.5% reflects softer domestic demand that is only partially offset by improving external demand.
We have downgraded our forecasts for emerging economies (particularly China) and upgraded our forecast for developed economies (particularly the US and the UK). The downgrade to our 2014 China GDP growth forecast from 7.9% to 7.5% reflects softer domestic demand that is only partially offset by improving external demand.
Commodity currencies to come under pressure
The relative change in the global growth mix is likely to be less commodity intensive. This implies less support for the currencies of commodity exporters such as Australia, New Zealand and Canada. The balance of risks to our 2014 global growth forecasts is tilted to the downside, particularly if recent volatility in emerging markets spreads beyond the financial markets into the real economies.
Downward adjustments to FX forecasts
In terms of our FX forecasts, we have made downward adjustments to our AUD, JPY and CAD profiles. We have left our forecasts for the remaining major currencies (i.e. EUR, GBP, NZD and CHF) unchanged. The adjustments to our AUD, JPY and CAD forecasts reflect idiosyncratic developments in the respective economies and currency drivers.
Commonwealth's Australian dollar forecast
We expect the AUD depreciation path to be slightly more pronounced than previously thought. We now forecast AUD to ease to 0.8400 by 2014 year‑end (previously 0.8900). And given the AUD’s average annual trading range, it is conceivable the AUD trades sub‑0.80 at some point in 2014, particularly if Australia’s economic transition falters or emerging market fears escalate. The lowering in our AUD forecast profile is driven by a positive outlook for the USD, the changing composition of global growth back towards the advanced economies, reduced capital inflow support and sub‑trend GDP growth in the Australian economy over 2014.
Japanese Yen forecasts adjusted
We now expect even more JPY weakness than previously projected. This is because Japan’s current account surplus has deteriorated even further than our prior pessimistic expectation of 0.5% of GDP. This structural change in Japan’s balance of payments from a previous 15 year average of 3.1% of GDP is the main driver behind the weaker JPY forecasts. We are looking for USD/JPY to rise to 119.00 in Q4 2014 (previously 107.00).
Canadian dollar forecasts
In our view, CAD underperformance witnessed over recent months looks set to be sustained over 2014. We now forecast USD/CAD to rise to 1.18 by year‑end (previously 1.1000). A lacklustre Canadian economy, changing dynamics in the global economy, a shift by the Bank of Canada (BoC) to a more dovish stance, and a firmer USD are the main drivers behind this view. Given the muted inflationary pressures in the Canadian economy and subdued growth, we now expect the BoC to remain on hold at 1% until Q4 2015, some nine months later than we previously forecasted.
A positive US dollar outlook for 2014
We have modestly raised our USD/Asia forecasts based on our positive USD outlook. Performance across Asian currencies in 2014 will vary depending on prevailing macroeconomic fundamentals in each country. Our base case is for the current emerging market unease to remain contained. However, within Asia, Indonesia and India standout as potential risks due to persistent current account deficits. In terms of CNY, we think it can continue to outperform in 2014. However, more pronounced moves are likely in the second half of the year.