Bank of America Global Research argues that balance of payments dynamics fwill be a headwind for the likes of EUR, NZD and GBP, whilst supportive for AUD and NOK for the coming year.
"As global central banks’ policy tightening continues to pick up pace, markets are turning their attention to potential pressure points in the economy. Recent events in the UK, which focused attention on leverage in the LDI sector, have heightened this sense of urgency that other countries may have similar fault lines that will be exposed as rates go higher and global growth slows. In recent reports, we have discussed the potential areas of concern, which we think will be an important theme for FX. One key area, which we will be focusing on is the balance of payments dynamics," BofA notes.
"The impact of rising energy costs and the relative speed of central bank policy normalization has affected both sides of the balance of payments ledger. We looked at how this may impact the G10 FX landscape over the coming year and conclude that balance of payments dynamics will be a headwind for the likes of EUR, NZD and GBP, whilst supportive for AUD and NOK," BofA adds.