The following are the latest outlooks and strategies for EUR/USD, GBP/USD, USD/JPY, and AUD/USD as provided by the Commonwealth Bank of Australia (CBA).
EUR/USD: Bullish. Target 1.3950. Dips in EUR likely to be short-lived even if ECB cuts rates.
EUR/USD is likely to remain firm and continue to inch higher due to five factors: (1) Eurozone’s large €220 billion current account surplus (2.3% GDP); (2) further Eurozone commercial bank repatriation; (3) further investor portfolio inflow; (4) Eurozone exporter buying to cover under-hedged USD revenues; and (5) a soft USD. While there remains a reasonable risk the ECB responds to low inflation with further with further jawboning and/or policy easing, we don’t believe it will significantly dampen EUR.
GBP/USD: Bullish. Target 1.6900. Dips in GBP likely to remain shallow.
GBP/USD is likely to remain firm reflecting the improving UK economy. The interest rate market is grappling with the timing of a BoE interest rate hike by December. The risk is the BoE delays raising interest rates until mid-2015. But we see further GBP upside.
USD/JPY: Bullish. Target 104. USD/JPY likely to lift to 104.00 by end-June
In the short-run, USD/JPY is likely to continue to closely follow the direction of the US ten-year treasury yield. Over the medium term, we see US ten-year treasury yields lifting. But we believe USD/JPY will continue to rise because of the collapse in Japan’s current account surplus, which has moved from a fifteen-year average of 3.1% of GDP to less than 0.5% of GDP.
AUD/USD: Bullish. Target 0.9500. AUD/USD likely to lift towards 0.9500 by mid- June.
AUD/USD is likely to trend higher on five factors: (1) The Australian economy is improving and the fear of a sharp domestic mining investment slowdown is receding; (2) foreign purchases of A$ bonds have picked-up; (3) the RBA appears to have stopped talking down the AUD after shuffling to an neutral bias; (4) the global economy is improving and Australia’s terms of trade are not under large downward pressure; and (5) a soft USD.