The NAB says the US dollar bounce won't last

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If you’re wondering what the future holds for currency markets but don’t have the time to delve into the detail of what’s moving what, this may be of some interest.

Source: NAB

It’s the National Australia Bank’s (NAB) FX Strategy Team’s “FX views in a Tweet”, a condensed assessment of what direction major currency pairs are likely to move not only in the near-term, but also looking six to 12 months ahead.

Nifty, right?

At the centerpiece of all these views is the US dollar, and while the NAB sees the prospect for a near-term bounce in the greenback given faltering investor sentiment, higher US bond yields and the potential for some modest short-covering, longer-term, it thinks the US dollar will continue to move lower.

“USD weakness in the past three months has coincided with the breakdown in the relationship between yield differentials and the dollar, which first became evident in mid-2017,” it says.

“In understanding the drivers of this apparent paradigm shift, we conclude there is more USD weakness ahead. Accordingly we have made some modest upwards revisions to forecasts, concentrated mostly on EUR, GBP and JPY — much less so AUD or NZD.”

Here are the NAB’s latest forecasts for major currency pairs.

Source: NAB

On the recent lift in US bond yields, the NAB says that while it “can now make something of a comeback as a positive USD influence”, it says this will only slow, not reverse, a secular USD depreciation trend.

The NAB sees the US dollar index, or DXY, “heading to 85 in coming quarters”. It currently sits at 89.15.

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