It's forecast season again, and the currency strategists are hunched over their crystal balls and chart, busily producing their best calls for 2013.
At Wells Fargo, one group of currencies in favor for the new year is what they call the 'nifty NAFTA.'
The strategists, led by Nick Bennenbroek, say the Canadian dollar and Mexican peso are poised to outperform other risk-sensitive currencies like the Australian and New Zealand dollars. They like "the pulse of the respective labor markets," they say, with Canadian employment rising 1.7% year over year and Mexico's around 4%. Those figures contrast favorably with 1.1% growth in Australia and unchanged employment in New Zealand.
Another plus: central banks in Canada and Mexico" have held rates steady at 1.00% and 4.50% respectively for some time, but indicated a bias towards higher rates," the strategists say. The Reserve Bank of New Zealand has a more or less neutral stance, and Australia's central bank "resumed its rate cut cycle in October, and its Cash Rate now stands at 3.00%."
FX positioning favors the Canadian dollar over the other three risk-sensitive currencies, the strategists say, and long-term valuation rates and purchasing-power measures favor the peso.
The strategists also expect the dollar to outperform against the other major currencies. "Fed easing and a probable U.S. budget agreement would support global sentiment, and boost commodity and emerging currencies," they say. But "the greenback should gain against the euro, yen and pound however as those economic regions underperform and those central banks maintain an easy monetary policy stance."
There you have it - a North American trifecta. Now get your trades on.