Direction of commodity currencies. Westpac’s forecasts

In the environment of trade wars, a lot of currencies are suffering. We can say that the most negative impact trade wars have on the Australian and the Canadian dollars. Both commodity currencies are suffering from volatility now. Let’s look at Westpac’s forecasts to determine if the loonie and the aussie have a possibility to strengthen.

Note: Westpac is one of Australia's "big four" banks and the second largest bank in New Zealand.

We will start with the Canadian dollar. According to the Westpac’s analyst, threats of trade wars and accommodative policy of the Bank of Canada are exaggerated. If we talk about the trade wars, risks of the US-Canada war have declined as the last one was excluded from Trump’s steel and aluminum tariffs. Moreover, there is a progress in NAFTA negotiations.

What about the BOC policy? Expectations on the BOC’s tighter monetary policy declined, however, the central bank is still anticipated to increase interest rates for the first time to the middle of 2018 and second time to the end of the year.

So market’s negative mood is supposed to slow down in the soon future.

What about rates? Westpac supposes that the USD/CAD unlikely will get a strong support at 1.30-1.35.

The Australian dollar. Ahead of the release of the interest rate, the AUD/USD pair traded at the three-month low. However, the aussie managed to strengthen after the Fed’s meeting as the rate hike could not support the greenback.

The Australian dollar is still under the pressure because of trade wars that dramatically affect the currency. Furthermore, declining prices of basic commodity goods produced in Australia, have a negative impact on the Australian currency.

However, Westpac’s analyst notices that new workplaces and a weakening dollar will be able to support the stability of the AUD/USD pair, so it will trade near 0.77.