2022 March Outlook for G7 Currencies
2022 March Outlook for G7 Currencies
Euro and Pound
Bearish Euro and Pound: Euro held around $1.11 and the Sterling depreciated to the $1.33 level at the beginning of March 2022. Both currencies have underperformed over the month as the Russian-Ukrainian crisis has eroded the appeal of risk-on currencies. With investors flocking to safe-haven assets, the Euro and Pound could still see some bearish downside for the time being against the stronger greenback.
Uncertainty over Russian-Ukrainian crisis: Russian troops continue to advance on Ukraine’s capital, Kyiv, as we begin the month of March. The recent invasion has sent markets worldwide into a panic, with many investors opting for safe-haven assets such as risk-off currencies like the Dollar. Additionally, oil prices continue to surge as fears over future supply disruptions continue to spread. Governments worldwide have imposed sanctions on Russia in the hopes of ending the conflict in Eastern Europe.
Reassessing monetary policy: Given recent developments and rising tensions in the Russian-Ukrainian crisis, investors are beginning to cut back on bets for interest rate hikes by the ECB, with money markets pricing in a 25 basis point hike this year. Traders are also watching how the BOE might alter their monetary policy stance in the near term, with general consensus of a similar 25 basis point hike in March this year.
Dollar remains on bullish trend: The latest nonfarm payroll data showed stronger-than-expected results, which supported expectations of more aggressive action from the Federal Reserve with regards to tightening monetary policy. As a result, the U.S. dollar saw some strength going into March, allowing the Dollar to continue on its bullish uptrend.
EURUSD: Bearish below 1.1120
GBPUSD: Bearish below 1.3200
RBA kept rates unchanged: RBA kept the cash rate unchanged at a record low of 0.1% in its latest meeting, in line with market expectations and maintained that the Board is committed to retain highly supportive monetary conditions to achieve its employment and price stability objectives. Australia also benefited from its status as a net energy exporter, buoyed by rising commodity and energy prices as the escalating conflict between Russia and Ukraine stoked fears of further supply disruptions.
Rising oil prices: Canada, being one of the world’s largest exporters of oil also benefited from soaring oil prices with the ongoing conflict in Ukraine and sanctions on Russia which continue to exacerbate supply shortages. EIA data showed both domestic crude oil and heating oil inventories shrank, with storage levels at key Cushing, Oklahoma crude hub at 2018 lows. Meanwhile, OPEC+ will stick to its existing agreement to boost output by 400,000 bpd for March. Investors are also closely monitoring the Iran nuclear talks, which could see Iran supply over more than a million barrels per day to help ease a tight global market if a nuclear deal is reached.
Hawkish BOC: The Loonie strengthened against the greenback after the Bank of Canada hiked interest rates by 25bps to 0.5% to curb rising inflation which reached a three-decade high. This was the first hike by the BoC since October 2018 and set the stage for further rate hikes ahead as the central bank indicated that it would use its monetary policy tools to return inflation to the 2% target.
Hawkish RBNZ amid a fragile risk environment: Kiwi was supported after RBNZ raised its interest rates by 25 basis points to 1% in February while maintaining its hawkish stance, stating that “larger increments if required over the coming quarters.” With annual inflation reaching a three decade high at 5.9% and a tightening jobs market, we expect RBNZ to maintain its hawkish stance which could offer short-term support to the Kiwi. That said, Kiwi remains highly sensitive to the volatile risk environment with the Ukraine crisis in the spotlight.
AUDUSD: Bearish below 0.7465
NZDUSD: Bearish below 0.6878
USDCAD: Bullish above 1.2630 with limited upside seen