FX forecasts and associated rankings are published on behalf of Monex Europe and Monex Canada.
By the end of January, markets witnessed a mild rebound in the weak USD narrative that was previously fed by the breakthrough in vaccine developments and a stronger reflationary outlook in the US. The dollar’s rebound occurred early on in January as risk appetite took the brunt of disorderly vaccine distribution globally, which brought back the prospect of uncertainty into the 2021 growth outlook, while Joe Biden’s $1.9 trillion fiscal plan struggled to get bipartisan support.
The resulting impact on FX markets was largely expected by the Monex analysis team over the medium-term horizon, with Reuters’ poll results for January reflecting Monex’s top rankings among currency forecasters in a wide array of FX pairs.
Monex continued to outperform most forecasters with its calls for haven currencies, sustaining the view of a stronger JPY and CHF even amid a backdrop of improving risk appetite when the 3-to-6 month calls were made back in H2 2020.
While markets adapt to a scenario where mass vaccination won’t be achieved as soon as previously expected, we remain confident in our view of a structural downturn in the dollar over the medium-term, but have fine-tuned our outlook over the short-term horizon to factor in near-term support for the greenback.
Looking forward, investors will not only be observant of how countries fare in the vaccination race, but of how they coordinate efforts to promote the global economic recovery. In the current climate, high beta currencies like SEK and NOK remain susceptible to downturns in market risk appetite, while the euro remains vulnerable due to the sluggish distribution of vaccines.
While initially supported by a dominating trend of a weaker dollar, emerging markets continue to depict a highly volatile picture due to the level of uncertainty that has reappeared around the global economic outlook and the emergence of domestic headwinds.
Monex’s short-term assessment of RUB, ZAR and BRL dynamics has proven particularly precise over the one-month horizon, while medium-term forecasts for major EM currencies like CNY and MXN remain among our proudest results.
Looking ahead, the EM basket is poised to remain at the mercy of vaccine distribution, fiscal plans and inflation dynamics, while political risks remain in play for both RUB and TRY.
EMERGING MARKETS RANKINGS
Author: Olivia Alvarez Mendez, FX Market Analyst