The SEK‏ Regains Strength

The Swedish krona has weakened as expected and EUR/SEK has reached our old 8.75 one-month forecast. We expect the krona sell-off to be nearing the end, however, as about two rate cuts are already priced in the money market. Our main scenario is a gradual move lower in EUR/SEK going into 2013 and we have lowered our one-month forecast to 8.65.

The Japanese yen has now weakened by almost 14% since mid-year and we expect further weakness in 2013. Global macro data are improving and the probability of further monetary easing in Japan has increased (i.e. we see a high probability of a higher inflation target). As a result, we have lifted our USD/JPY forecast to 85 (3M), 87 (6M), and 88 (12M).

On the commodity currencies , we have revised higher our near-term forecasts for AUD/USD and notably NZD/USD as the latter sees support from a less-dovish RBNZ than previously, as the new governor seems fairly complacent around the growth outlook. With BoC a lone rider among major central banks in maintaining a hawkish bias and aggressive Fed easing tailwinds gathering for the loonie, we have lowered our near-term USD/CAD projection.

We are fairly positive about the prospects for the EMEA currencies and over the past months we have not gotten much news to fundamentally change our view on the region's currencies. As a consequence our FX forecasts for the EMEA currencies are fairly unchanged compared with a month ago.

However, we have adjusted our forecasts for the Turkish lira and the Russian rouble in a more positive direction - mostly because we have become more confident that carry trades will do well in 2013 on the back of especially fairly aggressive monetary easing in the US. This clearly should be supportive of the relatively high yielding Turkish and Russian currencies.

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