The diverging global economy means the U.S. dollar will drag Mexico’s peso and Russia’s ruble along with it to the biggest gains among major currencies this year as New Zealand’s dollar and Argentina’s peso turn into the biggest losers.
That’s the conclusion of economists, strategists and investors around the world surveyed by Bloomberg. They see Mexico’s exchange rate gaining 9 percent, with the U.S. Dollar Index rising about 3 percent and the ruble 17 percent. Argentina’s peso is forecast to weaken 29 percent as New Zealand’s dollar drops about 5 percent. The Swiss franc, yen and euro are all seen falling more than 1 percent.
With the U.S. economy forecast to grow at the fastest pace in a decade, Mexico’s exports to its northern neighbor and largest trade partner may benefit. That stands in contrast to the euro zone and Japan, where stagnant growth and the threat of deflation dominate. In New Zealand, policy makers have stopped raising interest rates as the rate of inflation falls, sending the currency to a 2 1/2-year low last month.
Investors should be “very much focusing on divergences that we are going to have around the world,” Scott Mather, co-chief investment officer at Pacific Investment Management Co., which oversees $ 1.9 trillion, said in a Dec. 19 interview on Bloomberg Television. “Dollar strength is going to be a theme well into next year and maybe even loger’.’
The greenback soared last year, gaining against all 31 of the most-traded currencies tracked by Bloomberg. Intercontinental Exchange Inc.’s U.S. Dollar Index, which measures its performance against six major peers, jumped 13 percent to 90.27, and 91.36 today. The gauge is forecast to rise to 94.6 by year-end, a level last seen in 2003, according to the median forecast of analysts.
Rising employment and lower gasoline prices are fueling U.S. consumer spending and powering the world’s largest economy to the fastest growth among the Group of 10 nations. Gross domestic product will expand 3 percent this year, the most since 2005, compared with 1.1 percent in the euro zone and 1 percent in Japan, according to economists surveyed by Bloomberg.
Traders are pricing in a 63 percent probability that the Federal Reserve will raise its benchmark interest rate from near zero by September, the first increase since 2006, according to data compiled by Bloomberg.
Faster growth in the U.S. is spilling over to Mexico, offsetting the drag from lower oil prices. The Latin American nation’s economy is forecast to expand 3.4 percent this year, from an estimated 2.2 percent in 2014 and almost double the region’s average projected growth rate, data compiled by Bloomberg show.
The peso will climb to 13.48 per dollar by year-end, according to the median forecast of 40 strategists, after falling 12 percent in 2014 and touching an almost five-year low of 14.9440 in December.
‘‘Improvement in growth will place appreciation pressure on the peso,” Alejandro Urbina, a money manager at Silva Capital Management LLC, said by phone from Chicago on Jan. 2. “There are expectations for capital inflows” as the government opens up the energy sector to foreign investors, he said.
Other winners may be currencies of commodity producers, which were hit by the 50 percent decline in oil prices since June. Brent oil prices may recover to $ 76 a barrel, from $ 55.5 today, according to a survey.
Analysts forecast a comeback by the ruble after the plunge in oil and international sanctions over Russia’s annexation of Crimea sent the currency tumbling 46 percent in 2014. They predict a 5 percent advance in Norway’s krone and an almost 3 percent rise in the Colombian peso.
For the euro and yen, analysts see more losses as their central banks’ monetary policies move in the opposite direction to the Fed. The euro will extend its 12 percent decline from last year to end 2015 at $ 1.18, after tumbling to as low as $ 1.1864 today, the weakest level since 2006, according to forecasters. The yen will tumble almost 4 percent to 125 per dollar, a level not seen since 2002.
European Central Bank President Mario Draghi is lobbying his colleagues to expand the supply of euros to buy government bonds in a bid to boost inflation that’s falling toward zero. In Japan, central-bank Governor Haruhiko Kuroda is expanding the monetary base at an annual pace of 80 trillion yen ($ 664 billion) after the economy sank into recession.
“The contrasting euro zone-U.S. growth and policy outlooks means that there is substantially more downside risk for the euro-dollar,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, Canada’s largest lender, wrote in a research note on Dec. 24.
The divergence won’t last long because dollar strength will hurt U.S. exporters and curb growth, slowing the pace of anticipated Fed rate increases and eventually weakening the greenback, according to Kathleen Brooks, European research director at Forex.com.
In the second half, “it’s a bit murky,” Brooks said in a Dec. 23 interview on Bloomberg Television. “The Bank of Japan, the ECB and the Swiss National Bank are actively potentially pursuing the policies of weakening their currencies. The Fed is doing the exact opposite. Are they going to be happy to do that?”
Argentina’s peso will depreciate to 12.13 per dollar, from 8.55, after losing 23 percent in 2014, based on analyst surveys. The peso was the second-worst performing major currency last year after the ruble with inflation running at an estimated 40 percent and the economy mired in recession.
New Zealand’s dollar will be the second-worst performer based on analysts’ forecasts, falling to 73 cents, from 76.49. While the economy is being buoyed by record immigration and construction, plunging prices for dairy products, the country’s biggest export, are curbing growth.
Growth will slow to 2.9 percent in 2015 from 3.5 percent last year, economists forecast. The Reserve Bank of New Zealand kept the key borrowing rate at 3.5 percent on Dec. 11 for a third time, after four increases earlier last year, as inflation fell to the bottom of a 1 percent to 3 percent target range.
“The economic data and outlook is unlikely to justify tightening monetary policy in 2015, and potentially well into 2016,” Jarrod Kerr, the Sydney-based director of interest-rate strategy at Commonwealth Bank of Australia, which sees a drop to 68 cents this year, wrote in a Dec. 22 research note.