Our favourite currency in 2024 is the Australian dollar. High US rates and weak Chinese growth have repressed it and made it the most undervalued currency in the G10 space. The release valve of lower US rates should allow the Aussie dollar to lead the currency recovery against the US dollar. A hawkish Reserve Bank of Australia should not hurt either. We are also bullish on the NZD/USD and are interested in whether the new government changes the Reserve Bank of New Zealand’s remit – a potentially bullish factor for NZD. USD/CAD should come lower too, and while Canada’s high yield helps, its proximity to the US may be more of a burden in 2024.
On the subject of carry, lower volatility favours the carry trade and also the yen as a funding currency. However, we have some quite aggressive forecasts for a lower USD/JPY on the back of a weaker dollar and finally a proper Bank of Japan exit from ultra-loose policy. Big policy changes in Japan can have a big impact on USD/JPY as in 2013. Let’s see how the start of 2024 progresses and whether the BoJ is prepared to make its move after all. - ING FX Strategy
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