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Aussie and Kiwi to fall back as tightening cycles underwhelm

The Aussie and the Kiwi have been amongst the best performing G10 currencies against the US dollar so far this year but, while we expect both to remain resilient in 2022, we eventually expect them to weaken. In view of the wider interest, we are also sending this FX Markets Update to clients of our Australia & New Zealand Service.
James Reilly Assistant Economist
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FX Markets Weekly Wrap

Safe-haven flows drive the dollar higher

The US dollar looks set to end the week stronger against most major currencies, nearing its strongest level since 2002 as “risky” assets remained under pressure. A key reason for the dollar’s rally is that weak activity data out of the US, including the ISM survey data released today, added to growing concerns about global growth. What’s more, policymakers largely shrugged off such concerns at the ECB’s Sintra Conference earlier this week, reiterating their commitment to taming inflation even at the cost of weaker growth. Next week’s minutes from the last FOMC meeting may well add to that picture. All in all, we think this backdrop will continue to favour the dollar. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

1 July 2022

FX Markets Chart Book

We expect the US dollar to continue trending higher

While the strength of the US dollar already reflects expectations that the Fed will continue its aggressive policy tightening, we think that disappointing global growth and weak risk sentiment will underpin further strength in the greenback this year. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

30 June 2022

FX Markets Weekly Wrap

We think the dollar rally has paused, not ended

Amid mounting concerns about the global growth outlook as more central banks raised policy rates, the US dollar looks set to end the week broadly unchanged against most major currencies. Although we suspect the greenback may struggle to make new highs in the near-term, we think the backdrop will remain favourable for the dollar over the coming quarters. If, as we anticipate, the US (and global) economy slows, but avoids recession, we think the US will remain relatively well-placed to weather tighter financial conditions. And if downside risks to economic activity materialise, then the dollar would probably benefit from “safe-haven” demand, as has been the case for much of this year. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

More from James Reilly

Capital Daily

We think Treasury yields will rise again even as inflation eases

While we think US inflation peaked in March, we still expect long-term Treasury yields to grind higher over the rest of 2022.

12 April 2022

Capital Daily

“Safe-haven” currencies and monetary policy divergence

Even though the Japanese yen and the Swiss franc are widely considered to be “safe-haven” currencies, the former has fallen a lot further than the latter this month. While we doubt this divergence will widen much further, we do expect both currencies to remain under pressure against the US dollar as US Treasury yields climb higher.

28 March 2022

Capital Daily

We think Latam currencies will give up some recent gains

Following their strong appreciation against the US dollar since the start of the year, we expect Latam currencies in general to reverse some of their gains over the remainder of 2022.

25 March 2022
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