- Short-term gains, but the US dollar is expected to peak in 2022
- Euro on the defensive until 2023
- The Canadian dollar in search of a turning point
- Sterling in the Doldrums, Limits of the BoE’s Action
Short-term gains, but the US dollar is expected to peak in 2022
CIBC expects the U.S. dollar to post net gains in the first half of 2022, with the currency supported by tighter Federal Reserve policy.
“The Fed is set to start raising rates in the second quarter of 2022, and the creation of market expectations for higher terminal rates will support a final act for the dollar rally.”
Later in 2022, however, CIBC expects the dollar’s trend to reverse. At this point, the Federal Reserve’s interest rates will likely be embedded and there will be concerns that the US economy will start to lose momentum.
In this context, the bank expects the US dollar to peak in the second half of 2022.
Euro (EUR) exchange rate on the defensive until 2023
CIBC expects the euro to remain generally weak in 2022 under the influence of loose monetary policy.
He notes that there are notable differences of opinion within the ECB, but that the Dovish members remain in the ascendancy despite the surge in inflation.
“The continued expansion of the balance sheet underscores that the doves remain in the ascendancy at the ECB.”
Against this backdrop, relative yield spreads will tend to undermine the euro’s support.
“A long period of inertia in ECB policy, in the face of firming expectations of the Fed’s aggressiveness, underscores our preference for the euro to remain on the defensive in 2022.”
The bank notes, however, that there will be a change in momentum if a highly expansionary fiscal policy supports the outlook for the euro zone. He also expects the cycle to turn around in 2023.
Overall, CIBC expects the euro against the dollar (EUR / USD) to weaken to 1.10 in 2022 and is trading at that level at the end of the year before a rally at the 1.15 level at the end of 2023.
Canadian dollar (CAD) exchange rate looking for a turning point
CIBC expects the Canadian dollar to be generally weaker in 2022, especially in the first half of the year.
The bank expects the Bank of Canada to start raising interest rates starting in April and expects the Canadian central bank to align with the Federal Reserve’s rate hikes.
Nonetheless, he expects markets to factor in more aggressive Fed tightening for 2023, which will hamper the Canadian dollar.
He also expects commodity prices to tend to be weaker due to Omicron fears, which will limit support for the currency.
“A lack of rise in commodities will also weigh on the loonie in early 2022. Oil demand will be hampered in the near term by the spread of the omicron globally. “
Later in the year, CIBC expects the Canadian dollar to gain ground; “By the end of 2022, we expect to see a shift in the tides for the loonie, as the market will likely have rallied to our view on the Fed’s hikes for the post-2022 period, and the general trend of the US dollar could therefore be towards a depreciation of the greenback.
CIBC expects the Australian dollar to benefit from the net support of a strong commercial account and monetary easing in China, while interest rate hikes will support the New Zealand dollar.
The pound in the doldrums, the limits of the BoE’s action
The CIBC notes that the Bank of England (BoE) raised interest rates in December due to inflationary concerns, but still considers the central bank to be generally cautious about a tightening during 2022.
“Moderate growth and a cap in energy prices should limit the rise in inflation and prevent the BoE from being in a hurry to tighten aggressively in the coming year.”
He also believes that UK fundamentals as a whole will dampen support for the pound amid unease over weakening growth prospects and trade frictions with the eurozone.
In this context, the bank expects the pound sterling to struggle to advance during the year.
The exchange rate of the British pound (GBP / USD) is expected to fall below 1.3000 in 2022 before rising to 1.36 by the end of 2023 as the US currency loses ground.
CIBC currency forecast table for the period 2022-2023.
|Pair||place||Q1 2022||Q2 2022||Q4 2022||Q2 2023||Q4 2023|
|EUR / USD||1.13||1.11||1.10||1.10||1.12||1.15|
|USD / JPY||114||115||116||114||112||110|
|USD / CHF||0.92||0.95||0.97||0.99||0.99||0.99|
|GBP / USD||1.32||1.31||1.29||1.32||1.34||1.36|
|EUR / GBP||0.85||0.86||0.85||0.83||0.84||0.85|
|AUD / USD||0.71||0.73||0.74||0.76||0.78||0.80|
|USD / CAD||1.29||1.29||1.30||1.31||1.31||1.29|
|NZD / USD||0.67||0.70||0.71||0.72||0.74||0.76|
|USD / CNY||6.38||6.30||6.25||6.15||6.00||5.90|
|GBP / CAD||1.71||1.69||1.68||1.73||1.76||1.75|