The next couple of weeks are considered to be the quietest periods in the financial market. During this time, we would like to think about the long-term and share our currency forecasts for the rest of 2016. Let’s start with a review of some of the top teams and explore them in detail as the week progresses in the outlook for each major currency.
2015 was a very big year for the foreign exchange market. The divergence is in many monetary policies brought upon strong movement in currencies with the United States dollar emerging as one of the best performers. This would be one of the first rate hikes for the United States in almost a decade while major banks in China, Japan, New Zealand, Canada, and Australia eased. During this time, we saw the greenback climb to multi-year highs which helped to weaken major currencies and brought upon a collapse for commodities.
One of the greatest risks for the financial market as well as the global economy during this year is the feedback loop from the dollar as well as federal policy.
The quarter-point hike in December represented a nominal increase in United States rates, the federal reserve was expected to tighten four more times throughout the year which is expected to have larger ramifications for commodities, equities and currencies.
During the first few months of the year, the dollar is expected to strengthening, this is as long as federal officials do not backtrack on their hawkish views.
No war Hawks will be voted on the FOMC in 2016 which should bring about continued tightening. Consumer spending is also expected to go up due to the warm El Niño weather as well as gas prices dipping below two dollars a gallon. At this point, the dollar is still rich the path of least resistance is still considered higher. However we expect the second half of 2016 to see the Feds slow tightening to bring the greenback to the top as major currencies hit bottom.
Some Themes To Consider In 2016
Future monetary policy gaps will continue to expand during the first half and then narrow in the second. The Federal Reserve’s rate hike will bring about a new phase of monetary divergence.
During the year, the Fed will reduce accommodations during a time when other central banks try to maintain and expand their stimulus programs. Expect to see the Fed be the only major bank that raises interest rates for most of the year. During this time, you can expect to see investors thinking about who needs to make the next move. This type of speculation may accelerate as slow growth, weak external demand and low commodity prices hits many economies across the globe. However, for many countries the bar is raised high for additional easing. This global easing cycle is coming to an end as long as the bed continues to raise interest rates responsibly and is not wrecking have thick on financial markets. With that in mind we believe that the years Dominic trends will continue for several months and then reverse as the year continues and policy divergences stoped widening. It is also possible to look at this that as the dollar continues to strengthen, it will abate through the year.
Commodity Prices Will Bottom In 2016
high inventories, weak global demand, and a strong dollar managed to collapse oil prices this year and has continued to see a decline. This year the United States and its 40-year ban on oil exports and sanctions on Iran. As the dollar peaks, we can expect to see commodities bottom. The price of oil is expected to fall below $30 a barrel with little weakness beyond that point. The end of the year prices should settle around $40 a barrel. With China’s focus on domestic demand we can expect a positive for energy prices. There should be further easing as well as a lower currency in the coming year. If commodity prices bought him that will not only affect the overall outlook for commodity currency is but could shift the G-7 monetary policies as inflation begins to stabilize and turned upwards. Inflation is one of the greatest challenges for many banks while a stronger dollar lowers the value of currency. This process also adds to disinflationary pressure as prices are lowered and then one must question what has a greater impact on growth and inflation. At this point, in time it is lower commodities and not a lower currency.
2016 is expected to be a year of diminishing stock returns. The time for easy money is about to come to an and with the strong dollar as the Fed tightening will take a large chunk out of corporate profitability. Investors should expect single digit gains as a positive in earnings growth. With a strong dollar slow global growth and low commodity prices for the first half of the year means that stocks and earnings will suffer. Be on the lookout for a correction inequalities during 2016 that should trigger a flight to safety in currency markets.
This next year looks as though it is going to be an exciting one for the world’s economy. Those interested in the forex market will have a lot to watch for.