- The U.S. dollar just had its best year since 1997 after appreciating nearly 9% in trade-weighted terms. The end of QE by the Fed clearly helped, but so did a further loosening of monetary policy into unchartered territory by central banks in Europe and Japan, which hammered the euro and yen respectively relative to the greenback. Such a divergence of monetary policy will extend through 2015, suggesting further upside for USD, although we expect the overall appreciation to be more modest than last year. A stabilization of oil prices and a patient Fed could restrain somewhat the otherwise soaring greenback.
- Facing the threat of deflation amidst the ongoing deleveraging cycle which is restraining growth and hence prices, the European Central Bank finds itself with little choice other than follow its purchases of covered bond and asset-backed securities with outright quantitative easing. Adding to the euro's woes is the comeback of political uncertainty thanks to Greece, yet again. EUR/USD is still on track to drop to 1.15 by the end of 2015.
- After the recent Japanese elections gave him a new majority government, Prime Minister Shinzo Abe may press ahead with necessary structural reforms. The cheap currency policy will continue as the Bank of Japan ramps up the printing press, allowing the yen to depreciate against the USD to levels not seen since 2002. We remain comfortable with our forecast for USD/JPY to reach 128 by the end of 2015.
- We have revised down our projections for WTI oil prices to an average of $70/barrel in 2015 (versus roughly $90 in our previous forecast). The resulting downgrade to both our inflation and growth forecasts explains why we now expect the Bank of Canada to delay interest rate hikes to 2016. We have, accordingly, adjusted our targets, expecting the Canadian dollar to reach 1.20 by the end of 2015. Over the near term, however, the loonie could hold its own against the greenback as oil prices stabilize.
- Stéfane Marion/Krishen Rangasamy
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Can USD Repeat The Feat In 2015?
Published 01/06/2015, 03:06 PM
Updated 05/14/2017, 06:45 AM
Can USD Repeat The Feat In 2015?
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