Morgan Stanley is continuing weekly forecast for the pairs based on fundamental analysis related to the direction of the trading.
USD: Bullish.
"We see scope for USD strength to continue. However, we distinguish
between the performance of USD against low yielding funding currencies,
where we see less scope for depreciation, and against commodity
currencies and EM, where we expect strength to be focused. Even the
risks of a more dovish Fed are unlikely to drive USD to depreciate
against this latter group of currencies, as growth prospects in the rest
of the world remain below those of the US."
EUR: Bullish.
"We see scope for EUR to make further gains over the next few weeks as
risk remains bid amidst an environment of uncertainty. EUR was used as a
funding currency for many risk-on trades; as these are unwound the
currency should see support. The main risk from our bullish EUR view
stems from the upcoming ECB meeting, where there is a risk of a more
dovish tone from the central bank in light of recent currency
depreciation."
CAD: Bearish.
"Bearish CAD is one of our higher conviction trades in G10. We believe
that there is a risk the central bank will need to take a more dovish
tone, weighing on the currency. Latest comments from the BoC that
macroprudential tools are addressing financial instability suggest that
monetary policy will be free to focus on low growth and inflation. An
environment of weak oil prices is unlikely to offer support to CAD as
well."
AUD: Bearish.
"A weak commodity picture and concerns about growth in Asia are likely
to weigh on AUD in the near term, and we would expect it to continue to
underperform. Ongoing weakness in capex highlights the risks surrounding
the currency. The main upside risks stem from the central bank, which
has been more hawkish, most recently highlighting the risks of running
easy monetary policy for too long. We will watch the upcoming RBA
meeting closely."
NZD: Bearish.
"With macro prudential measures expected to further reduce heightened
financial system risk and help moderate the Auckland housing market, the
RBNZ has left the door open for more significant easing. Weak
commodities prices, a struggling dairy sector, and soft global demand
should weigh on the small, open New Zealand economy. We expect NZD to
continue depreciating as both growth and rate differentials move against
the Kiwi."
