Morgan Stanley Currency Forecasts 2015

Please find below the exchange rate forecast table and a brief synopsis for each G10 major for 2015 issued by Morgan Stanley.

The US Dollar: "We would use any dips in USD as a buying opportunity. Higher US rates is not the crux of our strong USD argument – it’s US growth, which is likely to remain strong."

The Euro: "We believe EUR is likely to remain a sell over the course of 2015 as ECB easing remains a prominent possibility and political risks loom large. Comments from ECB members suggest the committee is moving towards further easing in January. What’s more, with Greek elections now before the end of the year, political risks are rising in Europe, which could add a risk premium to EUR."

The Yen: "Medium term bearish JPY view."

The Pound Sterling: "We remain bearish on GBPUSD. The BoE believes inflation could fall further, and both our economists and markets have pushed back their estimate of the timing of the first hike. What’s more, the latest OBR forecasts suggest that the UK’s fiscal position is worse than previously thought. Further austerity is likely, which will weigh on UK growth, supporting our bearish view."

The Swiss Franc: "We remain bearish on CHF over the medium term. The SNB retains its 1.20 EURCHF floor and would come in to defend if necessary"

Canadian Dollar: "Oil prices have fallen over 40% since the start of June, yet CAD is down only 5% against USD, the least of any G10 currency. CAD’s exposure to a robust US economy renders it the strongest commodity currency, and we hold our NZDCAD short position. That said, we believe USDCAD is likely to rise as oil prices decline, and wouldn’t be outright bullish against USD."

Australian Dollar: "We expect AUD to remain weak for several reasons. First, Chinese growth remains soft. PPI has printed negative for 33 months in a row, and the recent rate cut has not loosened financial conditions. Second the latest news on Australian banks suggests that they could have to raise capital, providing further headwinds to growth. Third, iron ore prices have barely recovered. Soft commodity prices should also weigh on AUD."

New Zealand Dollar: "We keep our bearish outlook on the NZD. The RBNZ has flattened its tightening bias and thus has been more hawkish than expected by the consensus, stating that house price inflation as the main reason for keeping the tightening bias, allowing NZD to rebound. Falling income from abroad, declining investment activity and a significant debt problem, house price inflation should soon ease off. The bank also still sees the NZD as overvalued and expects depreciation."

Swedish Krona: "While we remain bearish on the SEK over the medium term since the country is still in deflation and the central bank remains accommodative, there are signs that inflation is picking up which could provide some short term support for the SEK. We remain bearish on NOKSEK which could also provide some support."

Norwegian Krone: "We remain bearish on the NOK and the view has been supported by the central bank who cut rates by 25bp. They have opened the door to further cuts from 1.25% to 0.75% in the next few months. The reason for the cut was the large downside risks to growth. Lower oil prices have posed a risk to the NOK and now we focus on the second round effects on the economy. The NOK needs to adjust lower for the economy to become more competitive, supporting our view."