Monthly Currency Update

Currency Views

USD

Investors have had a good start to the year thanks to optimistic inflation news. The majority of currencies have appreciated versus the dollar as a result of this increased risk appetite. Among other indicators, the unexpected decrease in the ISM Services PMI points to a contraction and slowdown in the US economy. Even while the inflation number have been favorable, bleak economic data may soon dull market vigor. In the upcoming weeks, expect the USD to continue to decline versus the majority of the G10. View major events with economic calendar.

CAD

With more than 100,000 new jobs added, Canada was a big winner with job growth for December. Wage growth, on the other hand, was not strong . All things considered, the BoC will likely increase rates by 25 bps at its next meeting in January. The resilience of the Canadian economy and forecasts of higher interest rates in Canada has helped the loonie appreciate against the USD to start the year. The medium term trading range for the USD/CAD is 1.32 - 1.34.

EUR

The European Central Bank raised interest rates by 75 basis points in October, then by 50 basis points in December. The hawkish message that has emerged from these meetings suggest another 100bps rate rise in Q1 2023. Despite the possibility of subdued regional growth in the near future, the ECB's firm stance will limit potential losses to EUR. We anticipate marginal gains for the euro as 2023 progresses. The expected trading range for EUR/USD is 1.07-1.10 in the medium term.

GBP

The government's stringent fiscal measures are expected to cause a protracted period of economic stagnation, and the economic outlook for the U.K. is expected to remain challenging and unstable. The BoE is exceedingly unlikely to raise interest rates at this time given the current poor growth forecasts. The anticipated GBP/USD trading range is 1.22 to 1.25.

JPY

We forecast that the Japanese yen will strengthen over the long term. Global inflation may soon reach its peak and  policy rates could hit terminal levels shortly thereafter. The expected trading range for USD/JPY is 125-128.

CNY

China's decision to abandon its "zero- covid" policy has benefited the currency and the general mood of the market. Bond rates are projected to gradually rise through the end of this year as a result of stronger growth. All available evidence suggests that the prices observed in December may form a foundation for future growth in 2023 . The expected trading range for USD/CNY is 6.60-6.90.

INR

The absence of institutional traders throughout the holiday season is most likely what led to the recent abnormal USD/INR trading activity. The potential weakening of the USD and expanding trade imbalances suggest that the INR will trend somewhat higher versus the USD in the near future. Despite India's impressive performances in manufacturing and services PMIs, INR is still projected to depreciate by 0.5% against the dollar during Q1. The medium term expected trading range for USD/INR is 81 - 82.

AUD

The Australian Dollar reached a high of near $0.6900 in mid-December after rising from a 20-month low of $0.6170. Although we do not predict a straight line appreciation for the Aussie this year, it appears that a correction is now starting and might cause a decline towards 0.67 in the weeks ahead. Expected trading range for the AUD/USD is 0.67 - 0.70.

NZD

In the final quarter of 2022, the New Zealand dollar's value against the US dollar rose by 13%. It is anticipated that the Reserve Bank of New Zealand would stop tightening monetary policy due to the risks posed by ongoing recessionary trends. In keeping with the prevailing market consensus, the RBNZ expects an additional economic downturn into the second or third quarter of this year. The expected trading range for the NZD/USD is 0.63 -0.65.