USD and EUR have been used as the testing ground for tightening, rallying as the market anticipates tapering and rate hikes.
If our analysis is correct, then we need to seek out the central banks that are yet to turn the corner on policy.
We believe the AUD, NZD, SEK and NOK will be the next to move as it becomes clear that these central banks are moving to a tighter policy.
We therefore revise our forecasts, looking for appreciation in all of these currencies.
The EUR/USD rally is largely complete. When the ECB actually reaches the exit, the currency adjustment will likely been done. The consensus is too late to the party, again. We see EUR-USD fluctuating around 1.20 over the next year.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
