A snippet from the top forex trades for the coming year via UBS:
They nominate #1 as long AUD and NOK versus short CAD and USD
UBS like EUR/USD but prefer long NOK as a proxy for the EUR
- Norway tightening cycle has already started and is priced conservatively
- activity data has remained firm
- we see risks tilted toward a more hawkish Norges Bank as Eurozone growth stabilizes and Norway's expansion continues
AUD offers significant carry improvement … a good expression of our bearish USD view
- Markets remain conservatively priced with only 10bp of RBA hikes priced by 2020
- China's stimulus, resilient iron ore prices, and cheap valuation
Tightening cycles in the US and Canada are well priced
- FX valuations are expensive: USD and CAD are 13% and 5% above their respective fair values
UBS' #2 is long USD/CNY
- ongoing deterioration in China's current-account position and monetary policy divergence between the US and China (Chinese administration to maintain its easing bias)
- there are signs that the deterioration in the current account has started to weigh on the currency
- current-account buffer has all but gone
- domestic demand will remain relatively strong compared with export growth
#3 is long EUR/CHF
- re-emergence of systemic European event risk (Italy, Brexit) in 2018 has revived the bid for perceived 'safe-haven' assets, such as CHF
- However, a lot is already in the price
- and risks are now arguably skewed towards a détente
- temporary factors and adverse base effects have likely weighed on Eurozone activity since Q1; as these gradually dissipate, growth momentum should also stabilise
