Hot on the heels of NZD and GBP is the USD, argues HSBC.
“As New Zealand moved to raise rates – the currency rallied. As the market speculated about a UK rate rise – the GBP rallied. In our eyes the next one to hit lift off is the USD,” HSBC projects.
USD about to lift off:
“With the market having largely priced in a series of UK rate hikes they are likely, at some stage, to switch to pricing in US rate hikes, taking the USD higher with it. The similarity may also extend to the long end. In the case of both NZD and GBP, short rate expectations shot up but the long end has remained very well behaved. This is what we are expecting in the US and therefore we do not expect an explosion of volatility and a collapse in EM carry trades,” HSBC clarifies.
How to play it?
“We believe the best currency to sell against a resurgent USD is the EUR. Here we are seeing two economies, two inflation rates and two central banks heading in opposite directions. On this basis we think the USD is close to lift off whilst the EUR is just about to hit a long downward slope,” HSBC advises.
