Morgan Stanley FX overview

Bottom line: Economic cycles end by exuberance. Synchronized global growth should reduce net capital supply over time, pushing funding costs up. This is why synchronized growth is a late cycle characteristic. Higher funding costs will bite most in places where there is excessive leverage funded via short-dated instruments combined with weak asset quality. In 2007, the US had these attributes. Now we have to focus on G10 countries outside the US, Europe and Japan. Accordingly, we look for long-term selling opportunities in AUD, CAD, NZD, CHF, GBP and NOK against the USD and EUR. This opportunity may arise later this year when investors see increasing evidence of global funding costs marching higher. SEK may bounce as the Riksbank plays catch up, but long-term prospects are not looking supportive for the currency either.

13 Oct 2017 - 10:55- Economic Commentary- Source: Morgan Stanley

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