July - Fed tapering, USD appreciating


Tectonic tapering to turbo-charge the dollar

With the markets focussed on the prospects for Fed policy we address the question of whether a reduction in monetary stimulus will be good or bad for the dollar. In the current situation, any move to taper will be in response to the strength of the economy. This will be dollar positive.


USD tied to Fed's tapering triggers

We estimate Fed Breakeven Levels to see which level of economic data would encourage the Fed to begin moderating its QE programme. Currently all of the data releases are slightly above their breakeven level. Should they remain so, the USD will continue to power ahead.


Don't knock the NOK

We believe the sell off in the NOK is overdone. We retain our forecast of 7.10 for EUR-NOK by year end despite the recent spike higher. The Norwegian economy exhibits strong fundamentals and the currency is better placed to capitalise on its cyclical strength. We believe in fundamentals, we believe in the NOK.


Lowering gold & silver forecasts

After an initially encouraging upwards price performance after the April sell-off, the bullion rally lost momentum. With gold and silver prices resuming their slide, and with losses accelerating notably in the aftermath of the June18-19 FOMC meeting, we have changed our forecast.


Dollar Bloc

CAD feels the heat of the stronger USD: USD-CAD has pushed markedly higher in the past month, not only in line with the USD’s recent broad gains, but also reflecting some changes in the Canadian backdrop. Rather than representing a temporary shift, we expect the firmer bias to persist going forward.
AUD to stay weak: Over the past 3 months the AUD has been the worst-performing currency among the G10. With worries about China’s growth slowing and the USD bull still on the charge, the AUD has declined to its lowest in more than 2 years, and we expect its downward trend to continue.