FX Crossroads

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G10: FX implications of rising food and energy prices

Wed, May 28 2008, 15:24 GMT
by Danske Research Team

Danske Bank A/S


Summary and conclusions

• Food and energy prices have recently sky-rocketed. This naturally generates upward price pressure and inflation is either on the rise or set to rise in most economies. In this edition of FX Crossroads we examine which currencies will benefit, which will experience headwinds, and which currency pairs will look attractive in the near and longer term on the back of rising food and energy prices. In the near term EUR/USD and perhaps CHF/JPY are likely to head higher, while CAD/NOK is expected to turn lower. EUR/USD and AUD/NZD are both expected to rise in the longer term on higher energy prices. Investors are, however, advised to read these results with caution, due to the high degree of uncertainty about energy and food prices.

• Since the previous edition of FX crossroads – EUR/USD: Will history repeat itself? financial distress has eased and key data releases have been on the soft side in the US, while proving surprisingly buoyant in the Euro area. Energy prices have surged and focus has switched markedly from economic growth concerns towards inflation fears. In general, market participants now anticipate G10 policy rates to be higher one year ahead – except in New Zealand. The USD has been the worst performing G10 currency against EUR, and due to falling risk aversion JPY has lost ground, while carry-target favourites, AUD and NZD both have benefitted.

    Published on  Wed, May 28 2008, 15:26 GMT


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