USD, EUR, JPY, GBP, AUD, NZD: Outlooks & Forecasts

Focus of the day:

"USD: Bullish. As the labour market continues gains and the economy strengthens, we expect many EM currencies to gradually come under pressure, as excesses of the unprecedented period of record low US interest rates begin to reveal themselves.

EUR: Bearish. After cutting rates again, EURUSD prospects will be determined by the evolution of short-term real interest rate differentials and flow-based factors, where we see scope further diminishing. We recommend selling selective EUR-EM crosses.

JPY: Bearish. Ongoing weakness in the economy and talks of further BOJ easing contrast against hike-expectations in the US. Deterioration in Japan's current account deficit, combined with our outlook for US yields to rise later this year, will also support a USDJPY higher trend. GPIF-elated flows will also be important – we expect a broader shift to Japanese outflows to keep yen under the pressure.

GBP: Bullish. Data remain strong and market expectations for the BoE to hike continue to be bought forward. Expectations for divergence between euro zone and UK rates are at historical highs. However, high positioning is a risk to this view, particularly as the Scottish referendum approaches. Whilst housing concerns remain, we do not expect any macroprudential measures from the FPC to have a significant negative impact on GBP.

AUD: Long-term bearish. The RBA seems likely to turn more dovish after the Q2 inflation print, with declining yield spreads and falling commodity prices pulling AUD down further out.

NZD: Bullish vs. AUD. AUDNZD is trading rich to terms of trade and interest rate drivers and the market pricing of 36bps for the RBNZ over the year ahead appears on the low side."

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