CIBC sees the euro finishing up the year at 1.12, in part due to more fiscal support from European governments in order to boost growth. In the short term, they see a risk of retesting 1.08 but believe the weakness will be an opportunity to buy the common currency.
"A patient ECB, and the potential for Euro area fiscal support, should support both economic conditions and the euro in the latter half of the year. A more tempered pace for the first year of Fed hikes relative to current market expectations should work in the same direction," CIBC analysts wrote today.
Other comments:
USD
They see peak hawkishness currently and that skews the balance of the risks lower; keeping a close eye on a potential deceleration in growth and inflation.
They see the pair falling back to 116.00 at year end. They expect the BOJ to maintain ultra-easy policy despite commodity inflation and note that the market is only pricing in a 10% chance of a BOJ hike by year end.
The combination of widening front-end spreads versus the USD, as the market prices in additional Fed hikes and BoJ inertia, has been favouring near-term USD/JPY gains. But we don't see that momentum extending over our forecast horizon, as the market may soon come to question the pace for US tightening, prompting a correction in recent spread widening. We therefore look for the yen to regain some its recent lost ground from here to year end
They expect sterling weakness over the next few months despite another hike in May. They think the BOE will pause hikes after getting to 1.00%.
"The acknowledgment of the impact of falling real incomes underlines our view of a less aggressive rate profile than what is expected by the market. We assume that once rates hit 1.0%, triggering the QT threshold, the bank will be reluctant to rush towards additional tightening," they write.
AUD
They see AUD/USD rising to 77-cents at the end of Q3 as the RBA kicks off hikes in that quarter.
The acknowledgment of the impact of falling real incomes underlines our view of a less aggressive rate profile than what is expected by the market. We assume that once rates hit 1.0%, triggering the QT threshold, the bank will be reluctant to rush towards additional tightening
CNY
They anticipate another 50bps RRR cut and 10bps reduction in policy and prime rates in 2Q. They see further downside in USD/CHF coming but are cognizant of narrowing yield differentials for China and portfolio outflows.
"As was the case last year, we anticipate monetary authorities will be comfortable to allow the stronger currency to dampen the inflationary impact of higher commodity imports. In doing so, that can aid in support of domestic consumption, rather than promote a weaker currency in order to bolster exports," they write.