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28 Dec 2015
CAD and AUD: Overcoming the Fed rate hike hurdle – ING
FXStreet (Delhi) – Viraj Patel, Foreign Exchange Strategist at ING, suggests that the onset of the Fed’s tightening cycle and our expectation for a strong USD points to a difficult environment for G10 currencies in early 2016.
Key Quotes
“But for CAD and AUD, we have observed how the positive spillover of US rates into local markets offers some downside protection. In contrast, NZD remains highly sensitive to the isolated impact of higher short-term US rates.
While this would suggest that CAD and AUD will be G10 outperformers around FOMC events, we note that the landscape materially changes when introducing the risk channel. Indeed, should initial fears that the Fed are behind the curve escalate and trigger a correction in risky assets, then the estimated sell-off in commodity currencies meaningfully increases. Depending on the degree of risk-aversion, AUD could find itself as one of the worst-performers within the G10 FX universe. CAD’s vulnerability will also rise, though the short-end of its OIS curve may stay fairly supported.”
Key Quotes
“But for CAD and AUD, we have observed how the positive spillover of US rates into local markets offers some downside protection. In contrast, NZD remains highly sensitive to the isolated impact of higher short-term US rates.
While this would suggest that CAD and AUD will be G10 outperformers around FOMC events, we note that the landscape materially changes when introducing the risk channel. Indeed, should initial fears that the Fed are behind the curve escalate and trigger a correction in risky assets, then the estimated sell-off in commodity currencies meaningfully increases. Depending on the degree of risk-aversion, AUD could find itself as one of the worst-performers within the G10 FX universe. CAD’s vulnerability will also rise, though the short-end of its OIS curve may stay fairly supported.”