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Outlook

13 Jul 2023

The dollar could emerge as the “cleanest dirty shirt” yet again.

The dollar’s decline from its September highs could continue for several months yet, with depressed volatility supporting outward capital flows and limiting the currency’s safe-haven appeal. But the key conditions for a decisive move lower – a clear peak in US interest rates and a period of economic underperformance relative to the rest of the world – have yet to play out, and in the longer term, we think the risk outlook for other major trading blocs looks asymmetric, with structural vulnerabilities often outweighing the potential for sustained gains. The euro is, perhaps, the currency best positioned for outpeformance against...

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13 Jul 2023

The loonie might follow a multi-phased trajectory.

Taken in sum, a prolonged period of calm could see the Canadian dollar rally in the short term, outperforming regions that are facing more obvious structural challenges – like the United Kingdom, the euro area, Japan, and China – in capitalizing on dollar weakness. But growth risks, comparatively low yields, and volatility sensitivities – particularly relative to US equity markets – should represent serious headwinds for the exchange rate beyond the early autumn. Rolling 30-day CADUSD correlations, correlation coefficient

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13 Jul 2023

Help is coming.

While China’s emergence from COVID hibernation has underwhelmed relative to bullish projections, we believe policymakers may soon step up their efforts to boost growth and job creation. Youth unemployment is historically high, while consumer confidence is quite low, and external-facing sectors are grappling with a slowing world economy. Based on this mix, and ongoing financial stability concerns, we expect support measures to be aimed at fostering labor-intensive consumption growth. An improvement in the country’s economic fortunes should encourage capital inflows, particularly as it is set to occur when growth momentum across other major economies is slowing. Diverging growth trends should...

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01 Feb 2023

Volatility is picking up.

Given the activity spillovers from China’s faster-than-predicted shift away from zero-Covid, its economic reopening and stimulus drive should help lessen some of the downside risks to global growth. This should be an underlying Australian support via tailwinds provided to commodity prices. However, we think that a lot of that narrative is already priced in. Australian dollar appreciation has recently outpaced China’s activity pulse, indicating that an acceleration in momentum is being pre-empted. It would take further meaningful upgrades-which we don’t anticipate, to extend early 2023’s bullishness. Australian dollar, actual versus estimate

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