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AUD and NZD could do well given healthy fiscal positions whereas fiscal imbalances are likely to weigh on the EUR. Meanwhile, GBP and CAD are set to weaken this year on fiscal vulnerabilities, per HSBC.

Key quotes

“Those with the most room to support their economies through the course of the drawn-out recovery should feel the benefit from a currency perspective. In this light, we believe the AUD and NZD will perform well.”

“The fiscal imbalances and inconsistencies across the Eurozone, without a clear plan to mutualise debt in some form, will see renewed questions about the sustainability of the single currency zone. While we do not envisage a EUR break-up, the market may put a greater price on this possibility, which will weigh on EUR/USD.”

“GBP looks vulnerable from a fiscal perspective with a high level of debt-to-GDP, large deficit and in need of foreign financing. This is before one considers the potential political tribulations of Brexit and risk that no trade deal is reached with the European Union by the end of this year. We see GBP/USD falling this year before a modest reversal in 2021. CAD will suffer a similar fate and we expect it to depreciate against USD in 2020.”