FX winners for 2018: A tour through some bullish calls

Bloomberg

Following the dollar’s worst year in more than a decade, foreign-exchange strategists see few signs of optimism for the US currency in 2018. Yet they remain divided as to which of its major peers to be bullish on.
While most say monetary policy is set to drive FX movements in the months ahead, just how that translates into market performance remains a matter of debate. Bloomberg surveys show a majority of analysts expect the euro to strengthen by the end of 2018, but outlooks for the yen are more evenly divided.
The following is a selection of views from strategists outlining why they’re optimistic — or not — about the prospects for various major developed currencies.

The Yen
Currently around 113.19 per
dollar; median end-2018 survey forecast 112
The Bank of Japan “is probably the next to signal some kind of regime shift,” says Mark McCormick, Toronto Dominion Bank’s North American head of FX strategy. Dollar-yen will probably see a transition “where 115 is the peak and we’re headed back to 100 in 2018.”
Juan Prada, a foreign-exchange strategist at Barclays Plc, also expects the yen to strengthen amid “strong activity and gradually, slowly increasing core inflation” that could prompt the BOJ to change its monetary policy stance in the second half of 2018. He forecasts USD/JPY at 105 by the end of 2018. Others say not so fast.

The Euro
Currently around 1.1863 versus the dollar; median end-2018 forecast 1.21
“We tend to think kind of as a general picture, Europe does best, followed by North America, followed by Asia,” says Credit Agricole’s Serebriakov, who sees the euro strengthening to 1.23 against the dollar by the end of 2018.
“The ECB is tapering its QE. We see continuous strong equity inflows into Europe on the back of strong growth. The European yield curve can probably steepen a bit, which will probably help the euro.”

The Scandinavian Currencies
Swedish krona currently 9.8997 per euro; median end-2018 forecast 9.30; Norwegian krone currently 9.8524 per euro; median end-2018 forecast 9.20
The “best performers could be the European satellites, the Swedish krona and Norwegian krone,” Barclays’ Prada says, citing strong European activity, his expectation of a stronger euro and the Scandinavian countries’ more advanced cyclical position.
He expects EUR/SEK to trade at 9.30 by end-2018 and EUR/NOK at 9.20. Daragh Maher, HSBC’s U.S. head of FX strategy, says Sweden’s current policy mix of negative interest rates and a big balance sheet “doesn’t really sit neatly with an economy that 2018 is going to grow about 2 percent.”

THE CANADIAN DOLLAR
Currently 1.2691 per dollar;
median end-2018 forecast 1.23
The Bank of Canada “is probably going to be one of the more active central banks,” Wells Fargo’s Bennenbroek says. “The economy is doing OK, maybe CPI inflation in Canada is moving very gradually higher, but what has also been extremely helpful is the rise in oil prices, close to $60 a barrel.” He forecasts USD/CAD at 1.18 in 12 months. A strong growth outlook and pickup in inflation is set to boost the loonie in 2018, Credit Suisse Group AG foreign-exchange strategist Alvise Marino says.

THE AUSTRALIAN AND NEW ZEALAND DOLLARS
Aussie currently 0.7727 versus dollar; median end-2018 forecast 0.80N.Z. dollar currently at 0.7038 versus dollar; median end-2018 forecast 0.72
Emergency monetary policy settings are no longer needed in Australia and New Zealand, and there’s been a pickup in labor markets and commodity prices, so “central banks will pivot to the exit” in both nations, says HSBC’s Maher.
“For a normalisation story, the macro backdrop is pretty straightforward.” He forecasts AUD/USD will reach 0.84 at the end of 2018, and sees NZD/USD at 0.75.
“We do think the RBA is going to hike next year but that’s probably a story for the second half,” CIBC’s Rai said.