Back to series

Currency sentiments

USD Primary Drivers: 


Federal Reserve - The US' monetary policy outlook remains highly influential to USD's fundamental outlook. Policy easing from the FOMC is already at unprecedented levels, and expectations regarding the duration and extent of their emergency measures will continue to influence USD's fundamental outlook. Further and more aggressive easing from the Fed will likely weigh on USD, while expectations for eventual tapering and policy normalization will likely prove supportive. 


Risk Tone - As the world's reserve currency, USD is the most liquid currency in the world, and consequently, the ultimate safe-haven. Although USD does not always exhibit safe-havenproperties, when markets begin to panic and participants dump  


JPY Primary Drivers: 


Risk Tone - With a consistently positive current account and incredibly low interest rates in Japan, JPY has become synonymous with the term safe-haven. As the world's leading creditor nation, times of uncertainty result in repatriation flows, supporting JPY. At the same time, as investors often use JPY as a funding currency due to Japan's low interest rates, investors are often forced to buy JPY to close their risky positions when the market’s shift to risk off further supporting the currency 

 

CHF Primary Drivers: 

 

Swiss National Bank -Swiss monetary policy, or the market's outlook for monetary policy rarely proves market-moving. Instead, the primary influence from Switzerland's central bank comes from their constant interference with exchange rates as they continue to actively weaken CHF when they consider the currency to be highly valued. 

 

Risk Tone - As a safe-haven currency, CHF is strongly correlated with the market's risk tone, strengthening in risk-off environments and weakening in risk-on environments


CAD Primary Drivers: 


Bank of Canada - Canada's monetary policy outlook remains key to CAD's fundamental outlook. Expectations for policy tightening will likely support CAD, while expectations for policy easing will likely pressure CAD. Oil prices - Oil is Canada's largest export, accounting for over 17% of Canada's exports. As such, CAD is highly correlated with oil prices; strengthening when oil prices rally and weakening when oil prices fall. 

 

Risk Tone - Due to its high-beta status, CAD is strongly correlated with the overall risk tone; strengthening in risk-on environments and weakening in risk-off environments. Global Economy - Canada is a relatively open economy. As the world's 12th largest export economy and with exports accounting for 34% of GDP, Canada's economic performance and outlook is closely tied to the global economy and the global economic outlook. 


GBP Primary Drivers: 

 

Bank of England - Monetary Policy in the UK remains highly influential to GBP's fundamental outlook. Expectations for policy tightening should prove GBP positive, while expectations for policy easing should prove GBP negative. 

 

NZD Primary Drivers: 

 

Reserve Bank of New Zealand - New Zealand's monetary policy outlook plays a key role in NZD's fundamental outlook. A hawkish stance from the RBNZ and expectations for policy tightening will support NZD; while a dovish stance and expectations for policy easing will pressure NZD. 

 

Risk Tone - Due to its high-beta status, NZD is strongly correlated with the overall risk tone; strengthening in risk-on environments and weakening in risk-off environments. 

 

Commodity Markets - NZD is indirectly correlated with commodity markets due to New Zealand's dependence on China and Australia for trade. As both Australia's and China's economies influence and are influenced by the commodities complex, NZD tends to move in accordance with the commodities markets, but also with AUD

 

AUD Primary Drivers:


Reserve Bank of Australia - Australia's monetary policy outlook plays a pivotal role in AUD's fundamental outlook. A hawkish stance from the RBA and expectations for policy tightening will likely prove AUD positive; while a dovish stance and expectations for policy easing will likely prove AUD negative. 

 

Risk Tone - Due to its high-beta status, AUD is strongly correlated with the overall risk tone; strengthening in risk-on environments and weakening in risk-off environments. 

 

Commodity Markets - Due to Australia's dependence on its commodity exports for economic growth, AUD is strongly correlated with commodity markets, particularly iron ore, which accounts for20% of all Australian exports. 

China - China is Australia's largest trading partner, accounting for 35% of all Australian exports and 24%of Australia's imports. As such, developments in China and Chinese economic data can prove highly influential to AUD. 

 

EUR Primary Drivers: 


European Central Bank - Europe's monetary policy outlook remains key to EUR's fundamental outlook. EUR is likely to be supported when the ECB holds a hawkish stance and begin tightening policy, but come under pressure when the central bank holds a dovish stance and is expected to ease policy.

·       FOMC– This is linked to interest rates, so will need to know the current condition of interest rates to help dictate the possible outcome of the FOMC meeting.

·      Monetary policy – This is also linked to interest rates, but targeting more the buying and selling of bonds, an increase from previous month tends to be stronger for the currency.

·      Interest Rates – Higher rate is better for the currency.

·      Inflation rates – Higher the rate is better for the currency.

 

The Central banks:

·      AUD – RBA

·      NZD – RBNZ

·      GBP – BOE

·      USD – FED

·      EUR – ECB

·      CAD – BOC

·      JPY – BOJ

·      CHF – SNB