Morgan Stanley maintains a bullish outlook on the Australian Dollar (AUD) and Japanese Yen (JPY), expecting them to be the top-performing G10 currencies. Meanwhile, the British Pound (GBP) is expected to remain resilient despite negative sentiment, while the New Zealand Dollar (NZD) will appreciate but trail behind AUD. The Canadian Dollar (CAD) and Swiss Franc (CHF) are forecasted to underperform due to trade risks and funding flows.
Key Insights:
1️⃣ Top Performers: AUD & JPY
• AUD: Gains are supported by strong local fundamentals and positive global risk sentiment.
• JPY: Strength is driven by declining U.S. yields over time and the Bank of Japan’s gradual policy normalization.
2️⃣ GBP: Resilient Despite Bearish Sentiment
• The GBP remains supported by its attractive carry trade potential, even as the UK economic outlook remains weak.
3️⃣ NZD Gains, but Trails AUD
• The NZD is expected to appreciate, though it will underperform the AUD due to differences in monetary policy and a weaker domestic outlook.
4️⃣ Laggards: CAD & CHF
• CAD: Weighed down by domestic economic challenges and persistent trade risk premiums.
• CHF: Under pressure as it increasingly becomes the preferred funding currency in G10 FX.
