Despite the uncertainty permeating the air in nearly all the world’s financial markets, the new year was rung in with mild optimism. Market participants easily recall the turbulence that defined the transition from 2015 to 2016, and some expected that same trend to make an appearance this year, given the notion that economic fundamentals in several major economies have the potential for serious upheaval.
With analysts the world over taking stabs at what might happen, a few theories have been seen to hold water. What exactly is known this early, and how will it carve out trends that can be capitalized upon in 2017? Will current conditions react to new developments as predicted, and which currencies will be the stars of the show? Considering the backdrop, there are multiple directions for these answers to take.
The US Dollar
It’s no surprise that the United States’ newest President Elect is playing a bit heavy-handed with the country’s economy, but what is surprising is just how positive the reaction has been in financial market. Credit must also be given to the Federal Reserve, which plans to raise rates as many as three times over the course of the next year.
While rate hikes are indeed adirect impetus for dollar gains, creative policies that cut taxes for businesses and increase fiscal spending on things like infrastructure also imply a stronger dollar. These new fiscal and monetary policies, compounded by optimism stemming just from the comparison of last year’s troubled beginning has fed into the dollar’s stellar rise so far. While there’s still room for the dollar to appreciate over the medium-term, watch for fading optimism to cut into some priced-in progress halfway through 2017.
The Russian Ruble
Somewhat of an underdog, the Ruble’s upward trend from 2014 to 2016 may not be slowing down, given the recent OPEC deal and growth for the world’s most prolific energy exporter. The dire situation in oil and the according desperation from countries reliant on the commodity saw one of the first concrete OPEC deals in years go over without a hitch. The agreement to cut output even saw some non-OPEC countries join in, with the Ruble reaping the rewards as a result.
The rare determination witnessed in OPEC countries to stick to the terms of the deal could prevent the boat from rocking in the upcoming year, and Russian economists who just put their latest 3-year budget onto paper agree with this likelihood for stability. Their plan hinges on a Ruble floating at current levels, meaning that a steep decline from the existing valuation is not anticipated. So far, they’re right – the Ruble has appreciated versus the dollar. Olive branches extended by Donald Trump also give credence to the notion that this year may be a good one for Russia’s currency.
The Japanese Yen
Ever the haven asset, it’s no surprise that increasing global uncertainty has boosted the Yen in recent weeks. The currency stopped short amidst a freefall that started in late September 2016, and now stays within range with a slightly upwards trajectory.
Efforts on the part of Abenomics to boost the Nikkei 225 should aid the Yen’s cause, with the Japanese government’s late privatization spree meant to spur investment and optimism in the economy. This is part of Abe’s strategy to counter the lack of investment on the part of corporations, despite what the previously weak Yen did for profits and import prices.
All seems to be going well with this balancing act, with the optimistic Tankan Survey and monthly economic report coming alongside some tangible increases in wages, meaning that the country is in a good, if precarious, position going into 2017.
Currency traders will enjoy many potentially lucrative trends as the year progresses. CFD trading looks to be the best bet, as many of the trends being identified now will play out over the medium term, making expiry dates a key factor for traders looking to generatesome meaningful returns. Trends beyond the first quarter can only be viewed as educated guesses at this point, so traders taking longer-term positions do so at their own risk considering the shaky outlook for policy over the next three months.