The increase in the US dollar has been unprecedented. Strong domestic growth, increased pricing pressures, and the Federal Reserve's response to raising interest rates to counter inflationary price pressures have all contributed to its steady ascent. The USD is also benefited from tensions throughout the world as well as risk aversion. Global tensions, aversion to risk, strong domestic fundamentals, and a hawkish US Fed should all contribute to the US dollar's gain, which is likely to continue.
With a 75bp increase earlier this month, the Bank of Canada announced its fifth consecutive rate increase. The Canadian dollar has lost around 4% of its value against the US dollar so far this year, but it is still the best-performing G10 currency. It is anticipated that the Canadian dollar would decline as rising interest rates start to cool the domestic economy. The demand for commodities and the prices paid for those goods will decline as global economic growth slows. It's anticipated that the Canadian dollar is likely to drop to 1.33 over the medium term.
As it battles rising pricing pressures in Europe, the ECB increased rates once more in September by 0.75% and pledged additional rate hikes in the future. The hawkish tone did not help the euro, which currently trades near parity with the US currency. With Russia threatening to cut off the supply of energy, the Eurozone's current economic woes are made worse by the energy problem. Prices for energy and natural gas have skyrocketed, prompting some businesses to limit or even think about reducing output. As the energy crisis gets worse, it appears highly likely that the Euro-zone is going into recession. For the foreseeable future, EUR/USD is expected to trade close to parity.
The United Kingdom is a complete mess. In addition to the country's economic difficulties, the UK now has a new King and a newly chosen Prime Minister. Similar to in Europe, attention is heavily focused on how the ongoing restriction of Russian natural gas flows would affect energy costs. The UK's future seems gloomy. The question is: how long will the recession last? It's anticipated that the GBP/USD will drop to 1.10.
The USD/JPY has risen above 140 due to the US dollar's strength and the energy crisis. One of the G10 currencies that will do the poorest in 2022 is the JPY. You have to think that the Bank of Japan will step in at some time to support the Yen and stop the fall. There is growing consensus that the pair USD/JPY could fall to as low as 150.
Recent economic data releases indicate that China's economy is having difficulties. Economic activity has been hampered by Covid limitations, energy shortages, heat waves, and in some places severe drought. The PBOC intervened to lower interest rates and ease reserve requirements for their banks in an effort to spur growth and assist the housing market. It is anticipated that the CNY/USD could progressively decline toward 7.00.
As a result of the RBI's support for the Rupee, the INR has stabilised at roughly USD/INR 80.00. INR/USD is expected to weaken above 80.00. The introduction of government bonds into the JPM GBI-EM Index under new Indian government policies may benefit the rupee and halt its slide.
For the fourth time in a row this year, the RBA increased interest rates by 0.50% and indicated that additional rate increases will be required to reduce inflation. The hawkish tone did not help the AUD. The trajectory of the AUD will be affected by outside factors. Commodity prices, the US dollar's movements, the prognosis for Chinese GDP, and the global risk attitude. The AUD/USD is anticipated to stay restricted around roughly 0.70.
The struggling currency has not benefited from a hawkish RBNZ. Similar to the AUD, the NZD has been restrained by broad-based USD strength, unfavorable commodity prices, and exposure to the Chinese economy. NZD/USD is anticipated to decline toward 0.60.
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