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2020 Forex Forecast (Also: Interest Rates, Gold, and Oil)

January 1, 2020 by

Another year has passed and it is time to assess how accurate was my 2019 Forex forecast and to compose the forecast for currency pairs, gold, oil, and interest rates for 2020. As before, for each asset, I give a short recap of how my last-year forecast played out against the reality and then provide my current forecast along with the reasoning.

EUR/USD

I was able to correctly predict the general direction of the currency pair, but my expectation for the decline was more dramatic (0.9600–1.0800) compared to what the market preferred in 2019. The course of the US interest rates has played a large role in this. While I expected the Fed to hike rates in 2019, it went dovish instead. For 2020, I expect the same IR-based rebalancing to continue pushing EUR/USD slightly upper relative to where it is trading now. I expect the currency pair to finish this year between 1.0800 and 1.1700.

EUR/USD - Forecast for 2020

USD/JPY

USD/JPY finished 2019 just a little below the upper boundary of my yearly forecast range (102.00–109.00). A very lucky hit, considering that this Forex pair spent almost entire December outside my range. In 2020, I see USD/JPY consolidating with yen experiencing the same problems as the USD — the lack of high demand for safe havens and a rather dovish monetary policy. My year-end forecast range is 107.00–112.00.

USD/JPY - Forecast for 2020

GBP/USD

My 2019 forecast for GBP/USD was an exceptionally good call as the currency pair traded inside my target range of 1.2000–1.4000 during the entire year. It seems like the worst of the Brexit downside had already been priced in into the exchange rate by the middle of the last year. With more clarity of what will happen with Brexit itself and post-Brexit relations between the UK and the EU, I would expect GBP/USD to raise closer to the pre-Brexit levels in 2020, helped largely by the USD weakness. My end-year target range is 1.4000–1.5500.

GBP/USD - Forecast for 2020

AUD/USD

My analysis for 2019 AUD/USD forecast (0.7000–0.7700) was based on the expectations of interest rate hikes from the RBA. Instead, we have got three rate cuts from the central bank. Despite that, the pair spent quite some time inside my range during 2019. The second half of the year, it traded well below the range. However, AUD/USD managed to end the final day of the year just a little bit above the range’s lower boundary. Considering that Australia’s central bank signals that further monetary easing isn’t off the table, I believe that for 2020, a reasonable forecast range would be between 0.6500 and 0.7100.

AUD/USD - Forecast for 2020

USD/CAD

The advantage of giving a wide-range forecast for a year is that it is rather hard to miss. My range of 1.2800–1.3900 fully contained the USD/CAD movement of 2019. Still, it wasn’t a sure-fire bet according to the option valuation at that time. My 2020 forecast range for USD/CAD is somewhat narrower than for the last year — between 1.3000 and 1.3700. It is based on the expectations of interest rate cuts from the Bank of Canada.

USD/CAD - Forecast for 2020

USD/CHF

Similarly to USD/CAD, my forecast for USD/CHF hit the bullseye, largely thanks to the width of the forecast range. The currency pair traded only inside the boundaries — between 0.9200 and 1.0400. I believe that the SNB authorities are quite pleased with where the Swiss franc is trading against the euro and the US dollar, and I doubt there will be any significant change in their monetary policy. Thus, I expect USD/CHF to be affected mostly by the course of the US dollar (which will be rather weak, in my opinion). That is I feel comfortable to narrow my forecast range for 2020 — to 0.9400–1.0200.

USD/CHF - Forecast for 2020

NZD/USD

I didn’t give a forecast for NZD/USD last year. For 2020, I believe that the currency pair will continue its long-term downtrend, based mostly on the expected easing of New Zealand’s monetary policy. The year-end exchange rate should be between 0.5800 and 0.6400.

NZD/USD - Forecast for 2020

Gold

My 2019 forecast for gold didn’t go right at all. The price sidestepped my forecast range (1,123–1,263) with surprising precision, moving well above its upper boundary. Even though I expect the US dollar to depreciate somewhat in 2020, I also believe that gold will go down — simply because of the decreasing demand for safe haven assets and still non-existent inflation. My year-end range for XAU/USD is 1,250–1,400.

Gold - Forecast for 2020

Oil

Oil failed to meet my forecast target range even despite its huge width (between 34.00 and 54.00) — I had underestimated the crude’s ability to rally, though it traded inside the range for some time. My 2020 forecast of 49.00–62.00 for WTI grade oil is based on an expectation that the global supply growth will outpace the global demand for this commodity.

Oil (WTI) - Forecast for 2020

Interest rates

The Federal Reserve went on a rate cutting spree in 2019 and lowered them from 2.25%-2.50% to 1.50%-1.75% instead of raising them to my forecast range of 2.75%-3.00%. For 2020, I expect it keep steady with the rates, so that in the end the range is the same 1.50%-1.75%.

Although the European Central Bank has cut its deposit rate on September 12, 2019, it kept its main interest rate steady at 0% as I had forecast. I expect this rate to carry on through 2020 as well.

It wasn’t difficult to guess the interest rate’s path of the Bank of Japan. Same as with the ECB, the Japanese central bank wasn’t expected to and didn’t change it. I believe the same will be true in 2020 as well — the main rate will remain at -0.10%.

The Bank of England stayed pat on the interest rate, keeping it at 0.75%, missing my forecast of 1.25%. I believe that the aftermath of the actual Brexit happening will demand at least one interest rate cut from the BoE, so my forecast for 2020 is 0.50%.

The Reserve Bank of Australia reduced the interest rate from 1.50% to 0.75% in 2019 while my forecast had pointed to an increase to 1.75%. Right now, a more plausible expectation would be one rate cut from the RBA — to 0.50%.

I expected the Bank of Canada to increase its interest rate once in 2020 — to 2.00%, instead it ended the year with the same 1.75% it had started. Similarly to my RBA forecast, I now expect a rate cut to 1.50% by the end of 2020 in Canada.

The Swiss National Bank seems to be yet another central bank that will keep its interest rates unchanged in foreseeable future. Here, my 2019 forecast for no change was correct.

The Reserve Bank of New Zealand cut the rates much deeper than I expected — from 1.75% down to 1.00% instead of 1.50% — in 2019. For 2020, I think that the rate will reach 0.50% as the central bank’s governor seems to believe that it is possible to lower the unemployment further while keeping the inflation well within its target range of 1%-3%.

If you want to share your own forecast on Forex or any related markets for 2020, please feel free to do it using the commentary form below.

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