For the US dollar, analysts are predicting significant weakness in 2019. In contrast, the Canadian dollar will likely strengthen amid an energy market rebound, but under the same conditions the Indian rupee will slide to a record low. Cryptocurrencies, meanwhile, are trading higher but fail to inspire confidence.
The US dollar is close to its peak, an analyst at Dutch bank ING argued this weekend.
The world’s reserve currency will “embark on a gradual long-term bearish trend” commencing in the second half of 2019, said ING’s Petr Krpata, based on assumptions that the Federal Reserve will, by then, have neared the end of its tightening cycle, and that concerns over the US’ twin deficits will increase throughout the year.
The dollar was certainly a laggard last week but it did manage to end higher against the worst performing G10 currency, the euro.
The euro, which marks its 20th birthday this month, remains undervalued against the dollar, Krpata says. Having fallen into the high $1.13s due to a dip in European business activity and subdued core inflation, there’s now between 5 and 10 percent upside available, based on 2019 year-end forecasts from ING, which predicts an exchange rate of $1.2, and Bank of America Merrill Lynch, which has its eyes on $1.25.
Suggestions of euro strength against other major currencies appear more speculative. With Brexit and the end of ECB stimulus coinciding with slower economic growth and tumbling energy prices, it may be the case that eurozone inflation remains well short of targets in 2019 and, as a result, the ECB is unable to lift interest rates from record lows, thereby depressing euro sentiment.
Among those to gain significant ground versus the single currency could be the oil-sensitive Canadian dollar. Last week was among the worst in recent years for EUR/CAD, with its 5-day loss exceeding 3.5 Canadian cents.
Last week’s oil market rebound (Brent crude climbed 8.5 percent, or $4.50 per barrel) sent the euro down to C$1.524, away from 8-month highs recorded the week before.
Looking ahead, there’s potential for a much larger oil recovery, as forecast by Goldman Sachs and Bank of America, and at least two increases to Canadian interest rates in 2019, and these conditions lend themselves to lower EUR/CAD (and USD/CAD) rates. The same oil and monetary policy-based arguments can be made for another of the G10 currencies, the Norwegian krone.
Another currency strongly correlated to the price of oil in 2018, albeit negatively correlated and a tad more exotic, is the Indian rupee.
Unlike the aforementioned currencies, the rupee typically loses value when oil prices climb due to India’s status as one of the world’s largest oil importers.
Significant rupee losses are exactly what’s expected by US credit rating agency Fitch, as reported by the UK’s Sunday Express.
“Fitch Ratings has predicted the rupee to weaken to ₹75 [per USD] by the end of 2019 on a widening current account deficit and tighter global financing conditions.”
All else being equal, India’s current account deteriorates when its oil import bill becomes more expensive.
A USD/INR rate of ₹75, as Fitch predicts, would have the rupee at a record low (currently ₹74.53) and worth nearly 8 percent less than Friday’s per-dollar rate of ₹69.3.
In the crypto world, bitcoin is again trading back above $4,000 ($4,181 to be precise), nearly $1,000 higher than December’s low; not that that’s any consolation given its collapse from prices above $17,000 a year ago.
In China, analysts expect 2018’s crypto downtrend to persist this year.