Top Trade Idea 2019: Short AUD/JPY and Long USD/NOK – Global Growth to Slow and Political Turmoil to Rise
In 2018, the two biggest factors leading global risk aversion arguably were the trade wars and Fed tightening. These two themes are likely to continue into 2019.
The Australian Dollar is a sentiment-linked asset. As such, it closely follows the business cycle. Forecasts for global growth in 2019 look grim and this may exert downward pressure on the Aussie while demand for safe haven assets – such as the Japanese Yen – may rise. Additionally, the RBA’s dovish stance may hold while growth remains slow. As a result, the demand for haven assets over riskier ones may drive AUD/JPY down.
Reduced global growth may also hurt the Norwegian Krone that is likely to be negatively affected from slower growth and political turmoil in the EU – Norway’s biggest trading partner. The Fed looks determined to continue raising rates in 2019, and will therefore provide a boost to the greenback and send USD/NOK higher. Norway is also a major exporter of petroleum and faces the risk of lower prices amid forecasted weaker demand in 2019, another factor that may boost the pair.
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