For those expecting fireworks across currency markets over the next few weeks, be prepared for disappointment.
According to the National Australia Bank’s FX strategy team, all major currency pairs are likely to be range-bound against the US dollar.
The table below tells the story.
It’s the bank’s “views in a tweet”, a short synopsis on what they’re expecting in the near and longer-term in 140 characters or less.
Over the near-term there’s a sea of sideways arrows, indicating that the bank isn’t expecting any dramatic moves against the greenback.
It says that’s likely to remain the case until traders get further clarity on the outlook for US tax reform, suggesting that markets will use the progress of US healthcare reforms in the coming days as a yardstick as to how likely this will occur.
“The fate of the Health Care reform bill currently with the Senate — and which President Trump says he’s ‘very supportive’ of — will be one yardstick by which market will assess the likelihood of Congress moving on to tax reform in the Autumn, as well as successfully resolving the debt ceiling and other pressing budget issues in a reasonably timely manner,” it says.
Outside of politics, the NAB says that any yield-driven revival in the dollar will be driven by strong evidence of rising wage pressures sufficient to lift core inflation, helping to solidify Fed tightening expectations and higher US bond yields.
The bank still thinks that will happen, but admits it unlikely to happen within the next three months.
“We have accordingly nudged our end-Q3 dollar forecast down slightly while maintaining our end-year forecasts,” it says.
Here is the NAB’s current FX forecasts out to the end of 2019.