Crédit Agricole: Updated FX Forecasts 2017-2018

Analysts at Crédit Agricole have issued their latest exchange rate forecast tables and fundamental views on the world’s major currencies.

Highlights of the latest FX forecast briefing from the French investment bank sees strategists suggesting the Euro remains a buy on dips as they eye any setbacks to the Euro will be short-lived.

The Dollar has seen an improvement in fortunes of late but analysts are hesitant to to “jump on the USD bandwagon again and do not expect the currency to strengthen back to its cycle highs”.

Regarding Sterling, Crédit Agricole are more constructive and expect the Bank of England to signal it is ready to hike rates again to fight any persistent inflation overshoot on the back of renewed GBP weakness.

Summaries:

US Dollar

“The USD has been stabilising, mainly thanks to investors shifting their focus back to US President Trump’s tax overhaul plans, as well a potentially more hawkish composition of the FOMC next year. However, we are still doubtful that substantial tax reform can be pushed through Congress while inflation trends remain subdued. This should prevent the recent USD rebound from turning into a sustained medium-term uptrend.”

Euro

“After the ECB announced the details on tapering we believe markets will turn their focus to data as a market driver. Both growth and inflation may continue to improve and that should keep risk assets supported too. With fewer fears of currently depreciation the single currency is likely to become more positively correlated with risk sentiment. Hence, we stay in favour of buying euro on dips.”

Pound Sterling

“The GBP has suffered on the back of rising hard Brexit fears. With political uncertainty unlikely to rise further and as actual data leaves the BoE in a position to tighten monetary policy, we expect GBP downside to prove limited from current levels. If anything, we are not excluding the possibility that the currency will trade back towards the higher end of the last few weeks’ trading range.”

Yen

“With little scope for the BoJ to change its monetary policy stance any time soon, we expect the JPY to remain driven by external factors such as risk sentiment. Firm global growth has been keeping sentiment supported. This in turn should keep selling interest in low yielders such as the JPY low. The general election in Japan is unlikely to prove to be a major market driver.”

Canadian Dollar

“BoC rhetoric took a dovish turn, prompting the market to unwind some of the tightening expectations to the detriment of the CAD. However, at just two hikes between now and the end of next year we believe tightening expectations are unlikely to be scaled back much further. We expect the CAD to start regaining some ground early in the new year as we still see a January hike on the cards, while later, the CAD should be supported by a better oil-price environment.”

Australian Dollar

“Iron ore inventories in China are too high relative to steel production, especially with steel production quotas being introduced in the coming months. Higher UST yields as the Fed reduces its balance sheet will drag the AUD lower, especially while the RBA remains on hold. We expect the RBA to move toward raising rates around the middle of 2018; a move to a tightening bias has historically set off a long-term rally.”

New Zealand Dollar

“Fonterra has been too bullish in its pay-out to dairy farmers given weakening whole-milk powder prices. Higher UST yields will also weigh on the currency as carry trades are unwound. The RBNZ is expected to begin to raise rates in H218.”

Analysts also expect the NZD to be supported as the new Government lay out their agenda which is expected to eradicate some of the recent uncertainty dogging the currency.