New forecasts from Dutch bank ABN Amro see continued weakness in the US dollar heading into and throughout 2018.
“We have a strong conviction that the US dollar has entered a multi-year downtrend,” said ABN’s Georgette Boele.
The dollar will be hardest hit against “growth sensitive and commodity currencies,” according to the bank, which include the Australian dollar, New Zealand dollar, Canadian dollar, Norwegian krone and Swedish krona.
In ABN’s opinion, the aforementioned currencies will benefit over the next fifteen months from commodity price rises (commodities typically do well in a weak dollar environment), as global trade improves, and because the respective central banks of these currencies will soon commence raising interest rates (Canada has already begun).
Forecasts, Q4 2018:
Against most of the FX majors, ABN see the dollar falling back to 2014 levels.
Dollar weakness will culminate at the end of next year with an AUD/USD exchange rate of $0.9 according to ABN, which would mark a 12.5% gain in the Australian dollar from Monday’s open of $0.7998.
Like its Australian cousin, ABN sees the New Zealand dollar appreciating 12.5% to buy $0.82, from Monday’s rate of $0.7289.
There’s a gap to the Canadian dollar and euro, which are both set to appreciate by 8.8%, which will take EUR/USD and USD/CAD to $1.30 and C$1.12 respectively.
Performing a little worse will be the yen, which will gain 7.3%, forcing USD/JPY down to ¥104.
ABN appear least convinced about the British pound.
The bank takes a somewhat contrarian stance by saying that an increase in UK interest rates before year-end is “not our base scenario.” This flies in the face of market expectations, which were cemented on Friday after a speech by Bank of England committee member Gertjan Vlieghe, who appeared to confirm that rates would go up “within the coming months.”
ABN also expect sterling to be vulnerable to changes in sentiment as the UK-EU ‘Brexit’ negotiations continue to develop.
“It is difficult to call how [Brexit] news flow will go in the near term,” says ABN’s Boele.
Regardless, with the dollar expected to fall hardest of all, and with at least some kind of UK-EU transitional agreement expected, ABN sees GBP/USD rising 4.6% to $1.42, from Monday’s rate of $1.3580.
Best of all currencies will be the Norwegian krone. This will benefit from a rise in the price of oil and gas products, which make up nearly half of Norway’s total exports. The krone is expected to appreciate 20% against the dollar before the end of 2018, forcing USD/NOK to just Kr. 6.54.
Improving by 19% will be the Swedish krona. USD/SEK is seen at Kr. 6.73.