Fundamental Analysis: Second Attempt in March

Similar to my analysis from February, here are my assessments for each currency, done on March 20.

EUR (interest rate 0.05%)

• ~100B EUR in ECB long term bonds sold
• ECB commences 1T EUR QE program of buying sovereign bonds, buying about 60B EUR/month until Sept 2016
• Looking to shift inflation from below zero to about 2.0%
• Lifted growth forecast to 1.5% from 1.0%
• Outlook is DOWN

USD (interest rate of 0.25%)

• Cutting forecasts for growth to 2.3% from 2.7%, and for inflation to 1.3% from 1.7%
• Domestic economy is improving
• Surging USD has negative effect on exports
• Fed wants labor conditions to improve; unemployment at 5.7% still too high
• Fed considering interest rate hikes on a meeting-by-meeting basis, but a premature hike could undermine recovery
• Rate increase possible in September 2015
• Outlook is NEUTRAL or UP

GBP (interest rate 0.5%)

• BOE recent vote of 9-0 to keep interest rate unchanged
• BOE wanting to hit 2% inflation in about 2 years
• Dropping oil/food prices is temporary; 0.3% rate will increase in 2016
• No immediate plans to change interest rate, but next move is likely up as wages and the economy improves
• Pressure on GBP is up with inflation low and wage growth increasing
• Outlook is NEUTRAL or UP

JPY (interest rate 0.10%)

• Inflation currently hovering around 0.0%
• BOJ wanting a 2% inflation rate, but no immediate plans to expand current stimulus measures
• Targeting for 2% inflation in 2 years from now
• BOJ watching core inflation levels vs. oil prices, and expecting core inflation to be at 0.0%
• Outlook is NEUTRAL or DOWN

CAD (interest rate 0.75%)

• Interest rate cut from 1.0% to 0.75% in January
• Move by BOC meant to buy time or cushion against drop in oil prices
• Negative effects of low oil: lower export revenues, layoffs, cancelled investments
• Positive effects of low oil are uncertain
• Outlook is NEUTRAL or DOWN

CHF (interest rate -0.75%)

• Expecting inflation plunge, SNB pledges to keep rates at record lows
• SNB cut outlook for growth to less than 1.0% in 2015
• SNB expecting inflation of -1.1% in 2015
• SNB expecting interest rate of -0.5% in 2016 and +0.4% in 2017
• Appreciating CHF means exports are more expensive
• SNB wants a weaker franc and will intervene if CHF approaches parity with EUR
• Outlook is NEUTRAL or DOWN

AUD (interest rate 2.25%)

• Interest rate unchanged from 2.25%, cut from 2.5% in January
• Unemployment eased to 6.3% from 6.4%
• Decrease in mining investment, falling commodity prices, weakening demand from China
• Low growth
• RBA would like to increase consumer spending
• Possibly 2 more interest rate cuts in the next 12 months
• Outlook is NEUTRAL or DOWN

NZD (interest rate 3.5%)

• As of March 12, interest rate unchanged at 3.50%
• Monetary policy and interest rate hikes/cuts are dependent upon economic data, no immediate plans to do anything
• RBNZ feels NZD is overvalued
• Outlook is NEUTRAL or DOWN

Backtesting on the price charts to follow.