2020 Currency Forecast: Brexit, Trade Wars and Rate Cuts, the Big Things to Look Out for in 2020

Pound (GBP) to Remain Highly Sensitive to Brexit

For GBP investors, Brexit will remain the pressing issue in 2020. While Boris Johnson’s election victory may have allowed him to successfully pass his EU Withdrawal deal, the hardest part of negotiations is still to come.

In 2020 Johnson will embark on phase two of the talks, which will see the UK attempt to negotiate the terms of a trade deal and its future relationship with the EU in the span of just 11 months.

With Johnson reluctant to pursue any more delays, there is a clear risk of the process resulting in a no-deal Brexit at the end of the year, the threat of which is likely hang over the Pound throughout the year.

Also in focus in 2020 will be the Bank of England (BoE) which will not only be welcoming a new Governor in March, but is also expected to implement a rate cut in the first half of the year.

Euro (EUR) in the Balance as ECB to Navigate an Increasingly Difficult Fiscal Landscape

Movement in the Euro (EUR) next year is likely to be highly dependent on the decisions made by the European Central Bank (ECB) over the next twelve months.

An increasingly fragile outlook in the Eurozone, not to mention Germany’s recent economic woes, which have the country teetering on the edge of a recession, means the ECB will have its hands full

A wide-ranging review of the ECB’s strategy will begin in January, with Christine Lagarde (who took the helm at the ECB back in November) already signalling a willingness to deviate from the policy path forged by her predecessors.

If further easing is unleashed to support the currency bloc, or if Germany does indeed slip into a recession, the Euro is likely to have another difficult year in 2020.

US Dollar (USD) Faces another Presidential Election

We will see US politics return to the fore next year, with impeachment proceedings against Donald Trump and the 2020 Presidential election both likely to be key catalysts of movement in the US Dollar (USD).

It’s still unclear who will be the 2020 Democratic candidate, but the potential for Trump to be challenged by a Democrat who is viewed as economically disruptive, such as Bernie Sanders, could prove USD negative next year.

Also in the spotlight for USD investors will be whether the US and China are able to make greater strides towards easing trade tensions.

With a preliminary phase one deal now apparently agreed by both sides, the focus will turn to whether a more comprehensive deal can be reached in 2020.

Canadian Dollar (CAD) to Soften as BoC Rate Cut Looms

The Canadian Dollar (CAD) is likely to face some headwinds over the coming year as the Bank of Canada (BoC) is expected to finally begin easing its monetary policy in 2020 as domestic growth shows signs of slowing.

However the ‘Loonie’ may be lent some support from oil, as markets anticipate stronger demand and reduced supply will see crude prices steadily climb over the next twelve months.

Australian Dollar (AUD) to be buoyed by US-China Trade Optimism but Economic Pressures Remain

With the US and China on the verge of signing a preliminary trade deal, there’s the potential for the Australian Dollar (AUD) to find some notable support in early 2020.

However at the same time, the ‘Aussie’ could face some headwinds as Australia’s economy remains stuck in second gear, keeping the pressure on the Reserve Bank of Australia (RBA) to continue cutting interest rates in the coming months.

New Zealand Dollar (NZD) to Suffer if RBNZ introduces Unconventional Monetary Policy?

For NZD investors next the focus next year is likely to be on the Reserve Bank of New Zealand (RBNZ) as it is expected to continue cutting interest rates.

But with interest rates already at a record low of 1%, there’s only limited room for the RBNZ to manoeuvre. As such the bank may need to consider whether to deploy unconventional monetary policy tools, the implementation of which could take a heavy toll on the New Zealand Dollar (NZD) in 2020.

Matthew Andrews

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