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Markets are  swinging in favor of the US dollar and against the Japanese yen and moves have become quite strong  rapidly. From here, are commodity currencies ready for a bounce or a further drop?

The team at Nomura update the forecasts for the Australian, Canadian and New Zealand dollar to the downside, and explain why and where is next for  the following pairs: AUD/USD, AUD/JPY, USD/CAD, CAD/JPY, NZD/USD, NZD/JPY and AUD/NZD:

Here is their view, courtesy of eFXnews:

Nomura today has updated its forecasts for the commodity currencies (AUD, CAD and NZD) to take into account the much weaker starting point, the decline in commodity prices and the policy changes.

In general, Nomura believes that the commodity currencies will continue to depreciate against the USD as:

“1. The decline in commodity prices has not yet been fully priced in, especially for AUD and NZD. 2. The USD is expected to continue to appreciate, as the Fed is expected to continue to signal the start of normalization in monetary policy leading to a repricing of rates,” Nomura argues.

AUD CAD NZD downgraded forecasts against the USD November 2014 Nomura

In addition, Nomura sees more specific factors will also influence these currencies.

“In AUD, an increase in Japanese portfolio flow into AUD will likely reduce somewhat the depreciation, but not stop it,” Nomura projects.

Nomura expects AUD/USD to end the year at 0.84 and to continue to depreciate slightly next year, reaching 0.82 by the end of the first half of the year.

“In NZD, the resolve of the RBNZ to weaken its currency through FX interventions if needed and a repricing of the timing of the first rate hike to later should push NZD lower,” Nomuta argues.

Nomura believes that NZD/USD should fall further this year, reaching 0.75 by year-end and then 0.71 in H1 2015.

In CAD, continued cautiousness of the BoC, bringing attention to the policy divergence relative to the Fed, and slowing inflation early next year should lead to further depreciation in CAD,” Nomura adds.

Nomus now thinks USD/CAD is likely to end 2015 around 1.17, after reaching 1.19 in first half of the year.

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