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AdrianWS

Q1 2015 Outlook Pt.2
Ranking 18/35
In my previous article, I outlined the key themes overriding the FX markets for the beginning and covered a few currencies. In this piece I will look at the remaining currencies.

AUD outlook

The Aussie is possibly one of the most interesting currencies to watch throughout 2015. With so much going on, the AUD stands to have quite a volatile year.

Many of the key drivers of the AUD are expected to have sizeable shifts next year such as US interest rates, or Chinese growth and given so many variables it will be very difficult to have a prediction for the AUDUSD in 1 year time.

Negative factors for the year ahead are as such. Looking at the 5 year real yield, we can see a strong and tight fit to the AUDUSD


With higher US rates, and higher market risks (and volatility), the AUD's yield pick-up becomes less and less attractive.

Furthermore, Weak Chinese demand has led to far far lower demand in the construction sector in the domestic economy. This can be clearly reflected in the decline in Iron ore prices (below) which are down some 40% in 2014 and has a less than promising outlook for 2015.


However it's not all bad for the Aussie. Lets consider for a minute we are a large …
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Q1 2015 Outlook
Ranking 6/35
As we head into 2015, a few themes dominate the FX market and they will have substantial impacts on to currencies

  • Firstly, Oil prices will play a hefty role in determining monetary policy, as well as inflation expectations. So far this year, Oil is down some 36%

  • Secondly, the market is still underpricing US hikes... now we may see a change to the fundamentals, but as it stands the US rate market is still way of the pace of the Fed and Taylor rule estimates Looking at each currency bloc in turn we can see the potential moves.

GBP outlook

Near term risks for GBP are on the downside as remaining bulls capitulate with the weakening inflation picture. The basing of inflation would mark the low in market rate expectations and set the GBP base as well.

A potentially doubly hung parliament adds to well flagged uncertainty around May’s General Election. Investors don’t see any positive outcomes for GBP, with a Labour majority/coalition bad for business and Conservative majority/coalition raising prospects of Brexit.

When we look at risks going forward, the options space is pricing in some interesting moves for next may... if we look back to the scottish referendum it is far less sign…
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