Canada is choosing to act now to prevent a structural shift lower in potential output, or at least limit the adjustment to the greatest possible extent. The ECB and SNB decisions may have also featured heavily in the BoC’s decision as outside of the G5, the Canadian dollar is the most attractive destination for liquidity rotation away from the euro and franc. The RBA and RBNZ could find themselves in a similar position, while the ongoing correction in commodity prices due to demand fears will add to the pressure on the antipodeans’ terms of trade. We expect 0.80 and 0.75 to be the anchor points (also our one month forecasts) for AUDUSD and NZDUSD, respectively, over the medium term, but with risks to the downside. We continue to express preference for AUDNZD higher, marginally, due
to the greater valuation pressures on NZD.Finally, the Nordic currencies have all found some level of demand in recent days in anticipation of the rotation flows mentioned above, and EURDKK in particular has been under undue stress in the wake of the SNB’s floor removal. We continue to see stability in DNB policy though the cross will likely trade wider below the 7.46 target due to ECB QE leakage and like their Swiss counterparts, additional rate cuts cannot be ruled out. Norges Bank and Riksbank are also expected to continue easing to maintain policy differentials versus a quantitative ECB and discourage inflows, thereby keeping both EURNOK and EURSEK at elevated levels. We expect Norges Bank to cut by 50bp in March (or even earlier) while the Riksbank has explicitly warned that quantitative options may at least be pre-announced at their February meeting.
The post UBS: Bearish outlook on commodity currencies appeared first on www.forextell.com.