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Forex forecasts 2021
2020-12-21 • Updated
The year-end is getting closer. What will 2021 bring us? Let’s find out what major banks expect!
USD: down and down and down
Most analysts predict the further falling of the US dollar during the next year. The consensus is the decline by 5-10% against most currencies. There are two main reasons for this. First, US officials flooded the market with the USD via support measures to stimulate the economy. As a result, these actions will continue putting downward pressure on the dollar. Second, the Fed pledged to keep rates on the record lows for a couple of years. Therefore, investors won’t favor the low-yielding greenback.
CNH: first in-first out
China was the first country that experienced the Covid-19 pandemic and the first that got out of it. Therefore, China’s economy will grow at the fastest pace in comparison with other countries. Elsewhere, Biden’s presidency implies a more tepid US-China relationship, which will improve their trade negotiations. Therefore, the Chinese yuan may surge in 2021.
According to the ING Group, “market liberalization measures should allow USD/CNY to reach 6.30”. Notice that the CNY is traded within Mainland China only, while the CNH is traded outside of Mainland China. Since they have relatively small differences, we can expect the increase of the CNH in 2021 and therefore the fall of USD/CNH to the level around 6.30.
EUR: maybe rise, maybe no
The ECB isn’t satisfied with the appreciated euro as it weighs on exports. However, the weak dollar trend has to outweigh any ECB’s attempts to lower the euro and push EUR/USD further up. The ING Group forecasts 1.25, Nordea Bank – 1.26, whereas CIBC disagrees and anticipates EUR/USD will reach 1.18 in 2021.
ZAR: EM currencies will skyrocket next year
2021 will be the year of recovery and economic growth. Therefore, analysts expect a strong appetite for emerging markets currencies such as the South African rand. Developing countries tend to have higher interest rates and as a result, investors will favor these currencies for higher yields. The ZAR will attract capital inflows in 2021.
GBP: And Brexit, and virus…nothing good
The post-Brexit period will weigh on the UK’s businesses because of higher taxes and the new EU-UK trade conditions. Moreover, the devastating effect of the Covid-19 pandemic will add headwinds to the British economy as well. Therefore, the Bank of England will have no other choice but to ease policy further, which will weigh on the pound.
Oil: slow, but steady growth
Barclays forecasts Brent oil (BRN) will reach $53 per barrel in 2021 and US West Texas Intermediate (WTI) crude – $50 per barrel. According to them, the vaccine rollout will boost economic activity and rise the demand for crude oil.
Gold: bullish forecasts despite vaccine optimism
Although gold is moving in a downtrend these days, Societe Generale expects the gold price to hit $2 300 in the first half of 2021. The bank based its forecasts on the low-interest rates around the world, and the weak US dollar, which will support gold prices during the first 6 months of the next year. However, Societe Generale anticipates gold will drop in the second half of 2021.
To sum up, analysts from Societe Generale expressed the main Forex tendencies for 2021 in one sentence: “Negative real rates, record levels of negative-yielding assets, expanding US debt, a strengthening CNY and, eventually, potential flows into EM assets will pressure the US dollar and be supportive for gold”.
US oil exports reached a record last week at five million barrels a day, according to Energy Information Administration data…
The past two years have seen the biggest swings in oil prices in 14 years, which have baffled markets, investors, and traders due to geopolitical tensions and the shift towards clean energy.
Western countries are trying to find other options for oil and gas supplies after a 10th package of sanctions, which will put more pressure on Russian oil and decrease global oil supply. Italy, for example, is in talks with Libya.
Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?
Today, at 5:00 pm (GMT +2), the Bank of Canada will publish the Overnight Rate, which represents short-term interest rates, and is pivotal to the overall pricing of the Canadian Dollar in the global markets. Let's look at how the markets are faring ahead of the BoC rates release.