HSBC economists have forecasted that the Australian dollar (AUD) and the Canadian dollar (CAD) are likely to consolidate in the near term before strengthening over the longer term. Their prediction is based on the factors that influence the currencies. HSBC has suggested that in the short term, the focus will be on the US data and its impact on the Federal Open Market Committee (FOMC) meeting, which will take place on 21-22 March.
Both AUD and CAD have been performing well recently, with the CAD benefitting from the rebound in crude oil prices. Meanwhile, both currencies have been strengthening against the US Dollar (USD), which has been affected by uncertainties around the Fed, the US economy’s landing, and China’s recovery.
For the AUD, the RBA is expected to keep interest rates unchanged. The Australian economy has shown some improvement, with the labour market strengthening in January, which has provided some support for AUD. However, it is too early to tell if the Reserve Bank of Australia (RBA) will increase interest rates, as the central bank is expected to wait for more data before making any decisions.
As for the CAD, its performance is closely linked to oil prices. The price of crude oil increased by more than 70% from the lows in February 2016 to the highs in January 2017, which has helped to improve Canada’s economic conditions. However, there is still some uncertainty about Trump’s policies regarding NAFTA, which is a trade agreement between Canada, the United States, and Mexico. This could impact the CAD’s performance in the future.
Overall, HSBC expects that both the AUD and the CAD will perform well in the long term, as some of the uncertainties around the Fed, the US economy’s landing, and China’s recovery subside. As the USD weakens, the AUD and CAD are expected to strengthen against it.
In the long term, the CAD and the AUD are likely to benefit from the global economic recovery. Recently, the IMF upgraded its global growth forecast to 3.4% in 2017, which is a positive signal for the global economy. If this global recovery continues, CAD, and AUD are expected to grow stronger.
The consolidation of AUD and CAD over the short term is expected as investors re-evaluate their positions ahead of the FOMC meeting. If the FOMC raises interest rates by 50 bps, it could cause a negative impact on AUD and CAD. However, if the FOMC only raises rates by 25 bps, it is likely to lead to an increase in the value of AUD and CAD.
Another factor to watch for is Trump’s policies regarding international trade, including NAFTA. If Trump makes significant changes to NAFTA, it could impact the CAD’s performance. However, the recent statements regarding NAFTA from Trump’s officials suggest that the trade agreement will remain in place in some form, which is a positive sign for CAD.
HSBC’s prediction for AUD and CAD is dependent on the long-term factors that impact the currencies. As the global economy continues to recover, it is expected to have a positive impact on both currencies. Although the short-term fluctuations are hard to predict, HSBC has suggested that both AUD and CAD are likely to consolidate before strengthening over the longer-term. It will be interesting to see how the currencies perform as the FOMC meeting approaches and what decisions are made. However, the long-term outlook is positive for both AUD and CAD.
