At this point in time, analysts cannot draw an accurate picture of how the market will play in 2013. On the other hand, three factors are seen to play a prominent role as the New Year unfolds: the Euro-zone crisis, Japan’s aggressive stance to reverse currency deflation, and the effects of the Federal Reserve’s policies which seek to prop the American economy back to its feet.
The general contention among forex experts is that central banks around the world will make a big push to stimulate their economy. This, in turn, will lead to weakened currencies. If there’s one trading strategy that will dominate 2013, it will be range-bound trading.
In a report published by The Wall Street Journal, investment banks weigh in the financial outlook for 2013 vis-a-vis the global economic climate and foreseen policy strategies by Europe, America, Japan and other major players.
With the LDP’s victory in the past election, experts foresee a mounting pressure on the Bank of Japan to trade the Japanese Yen at lower levels. A representative from Morgan Stanley explains “With the Bank of Japan likely to engage in a much more aggressive easing stance, this should catalyze yen weakening.”
When it comes to US dollars, investment bankers are split in their outlook. BNP Paribas predicts that the American currency will continue on its downward trend as policy makers still have to deal with the issues of automatic tax rises and cuts in spending in addition to the Federal Reserve’s measures which aim to loosen monetary policies. On the other hand, low interest levels in America will act as a counterbalance for a weak yen. UBS is more optimistic in its forecast for the American dollar. According to the representative from the bank, the American economy is expected to fare better than the economies of Europe, England and Japan due to an expected 2.3% growth. Another important factor seen by UBS as a major advantage of the dollar against other currencies is the influence of the Federal Reserve’s quantitative easing.
On the other hand, Danish bank Danske foresees the emergence of currencies from Europe, Middle East and Africa, particularly the ruble, zloty and the forint. According to the Danske representative, monetary easing by the major central banks can only yield a positive impact for emerging market currencies. Citigroup also foresees heavy trading of the euro against both the Australian and New Zealand dollars.
Finally, the performance of the Chinese yuan is expected to have a strong, positive impact, particularly to those countries that trade heavily with China. According to Forbes magazine, the Chinese currency is expected to be propped up by strong trade surplus and increase in its exports. Australia, China’s biggest trade partner, is expected to benefit the most from these developments.