G10 FX: Running for cover? – Rabobank

Jane Foley, Senior FX Strategist at Rabobank, suggests that in view of the sharp correction in stock market indices, it not surprising that the safe haven JPY is the best performing G10 currency on a 1 day view. 

Key Quotes

“Scepticism over the pace and size of US tax reform, deregulation and fiscal stimulus under the Trump administration has finally overwhelmed optimism.  As a consequence stock markets and other risk assets are out of favour while bond markets and safe haven currencies are performing well.  Illustrative of the current mood, the JPY and the AUD are the best and worst performing currencies respectively within the G10 universe over the past 24 hrs.  Other strong performers are the CHF and the GBP.  The former is demonstrating its safe haven credentials while the pound is higher on the back of yesterday’s surprisingly strong UK February CPI inflation release.”

“Earlier this week we revised lower our forecast for USD/JPY to 110.00 by the end of the year.  The recent softness in the USD stemming from disappointment regarding the pace of US reflation provides a base for this view.  However, the safe haven yen will also capture a bid on geopolitical concerns.  Reports that N.Korea is suspected of conducting a failed missile launch will add to existing jitters about the country’s nuclear programme.”

“As it stands we expect EUR/USD to trade at 1.10 by the end of the year.  This forecast assumes disappointment about the pace of the Trump reflationary plans.  It also assumes short-covering in the EUR after the French election.  We would argue that concerns about political risk in Europe are not weighing as heavily on the single currency as at the end of last year.”

“While commodity currencies tend to perform poorly when risk appetite is low, the soft tone of the AUD over the past 24 hours is also a function of profit-taking after its recently recovery.  AUD/USD have been on a rocky ride since the start of the month as the debate about the outlook for protectionism, China growth risks, commodity prices, the domestic economy and the prospects of a RBA rate rise rattle on.  We are forecasting a move in AUD/USD towards the AUD/USD0.73 area by year end.”