Viraj Patel, Foreign Exchange Strategist at ING, expects that the AUD and NZD carry advantage will decline as US yield curve steepens but greater infrastructure investment could lift metal prices and support AUD while the CAD is likely to benefit from a stronger US economy if NAFTA doesn’t become an issue
Key Quotes
“Theme 1: Coping with global yield curve steepening
The Trump reflationary theme, and subsequent rise in US yields, has significantly eroded the carry advantage of the dollar-bloc currencies. When controlling for risk and spillback effects, NZD and AUD are vulnerable to another sharp rise US 10Y yields.”
“Theme 2: Will the global infrastructure investment drive lift metals?
Infrastructure investment will be one of the key buzz phrases of 2017; the pleas of global institutions – such as the IMF and World Bank – for greater public investment are finally being heard by world leaders. A by-product of this global shift towards fiscal activism is the added demand for natural resources (namely industrial metals if we’re talking about infrastructure investment); we note that such expectations are already being priced into markets, with the CRB’s industrial metal index up 17% since November. This divergence in commodity price dynamics could provide either near-term tailwinds or headwinds to the dollar-bloc currencies: AUD may remain supported from expectations of higher iron ore and coal prices, while CAD would come under pressure from soft oil prices (particularly if the Trump administration lifts the ban on US oil exports). Still, it is worth bearing in mind that this is an expectations game; near-term price action will be of a speculative nature and any tangible change in supply/demand dynamics are unlikely to be felt in 2017.”
“Theme 3: US, China and deglobalisation…
One of the major themes for global markets next year will be US-China political relations and whether we will see a pickup in trade-hampering protectionist policies. Irrespective of the fiscal story, commodity exporters would be negatively affected over the medium-term from a structural slowdown in global trade: the consequence will be further dollar-bloc FX adjustment to help cure the ‘Dutch disease’ in these economies. As for 2017, we may see diverging US-China growth expectations marginally support CAD over AUD and NZD.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
NZD/USD holds steady above YTD low ahead of RBNZ rate decision
NZD/USD remains below mid-0.5800s and closer to the YTD low touched on Tuesday amid bets for another jumbo interest rate cut by RBNZ later today. Moreover, renewed US-China trade war fears undermine antipodean currencies, including the Kiwi, amid the bullish USD sentiment, bolstered by expectations for a slower Fed rate-cutting cycle.
USD/JPY drops to multi-week low, further below 153.00
USD/JPY slides to over a two-week low on Wednesday as Trump's tariff threats continue to drive haven flows towards the JPY and exert pressure on spot prices. That said, doubts over the BoJ's ability to tighten its monetary policy further should cap gains for the JPY.
Gold price consolidates amid mixed cues; holds comfortably above $2,600
Gold price struggles to capitalize on the overnight bounce from the $2,600 neighborhood or over a one-week low and trades with a mild negative bias on Wednesday. The prevalent risk-on environment, expectations for a less dovish Fed, elevated US bond yields and the underlying bullish sentiment surrounding the USD act as a headwind for the commodity.
Bitcoin remains short of $100K as long-term holders capitalize on recent price rise
Bitcoin (BTC) trades below $95K on Tuesday following increased selling pressure among long-term holders (LTH) after a series of new all-time highs (ATH).
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.