CIBC strategists predict stronger USD, pointing to lower sensitivity to interest rate movements
The US mortgage market stands out for its resilience as global economies grapple with economic shifts and interest rate fluctuations, according to a Bloomberg report.
According to strategists at CIBC Capital Markets, the US is “better equipped to deal with higher rates than the market expects.” This is largely because the US is less sensitive to mortgage rate adjustments compared to nations like Canada and Australia – positioning the US housing market as more stable and less susceptible to the sudden shocks that global economic shifts might bring.
Market indicators are hinting at significant shifts in the near future, with interest rate futures and overnight index swaps suggesting more than 100 basis points of cuts from the Fed by the end of 2024. That is in stark contrast to predictions of just 55 basis points in Canada, 15 in Australia, and 50 in the Eurozone.
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Bipan Rai, the global head of foreign exchange at CIBC, offers a different perspective. “In the months ahead, we expect more in the way of easing to be priced in by end-2024 for those markets,” he told Bloomberg.
CIBC now anticipates the euro will decline by 2%, settling at $1.05 by year’s end, echoing Wall Street analysts who have recently downwardly revised their outlook on the common currency. The Canadian bank projects the loonie to dip to 1.39 against the dollar by the close of the fourth quarter, also marking a 2% decrease from its current position — a level last observed in October.
CIBC strategists had previously forecast a prolonged decline in the dollar, citing valuation metrics but also noting the possibility of brief upticks. However, with recent data pointing towards the greenback’s resilience, Rai commented, “USD strength will likely stick around for longer than we envisaged at the start of the summer.”
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With uncertainties clouding global growth, especially in powerhouse economies like China, the US real estate market may become an even more attractive proposition for foreign investors. According to Rai, economic pressures could particularly affect China’s primary trading partners, including Germany and Australia.
Additionally, the analysts pointed out potential liquidity challenges in the US financial system, as indicated by bank reserves and reverse repurchase agreements, factors that might bolster the US dollar. Such actors might further reinforce the US dollar’s strength.
“The drop in RRP of late suggests that the beta to UST issuance is still high — and that we could be in store for further declines with an abundance of Treasury supply still incoming,” Rai said.
London-based HSBC has also revised its outlook, now estimating the euro to drop to $1.03 by the first quarter of 2024.
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