Market News
UBS adds Norwegian krone to top FX picks as oil rally seen capped - BLOOMBERG
BY Jaiveer Shekhawat
Investing.com -- UBS expects currency markets to remain sensitive to developments in the Middle East, but believes global oil market adjustments should prevent a sustained surge in crude prices, reducing the need for additional interest rate hikes by major central banks and supporting risk assets.
The bank said swings in oil prices linked to the Iran conflict have been the main driver of inflation expectations and currency moves. While renewed tensions have lifted crude prices, UBS expects the conflict to alternate between periods of escalation and de-escalation, with Brent crude unlikely to remain above $100 a barrel in the near term. That backdrop should allow most G10 central banks to keep policy unchanged rather than resume tightening.
Against that backdrop, UBS continues to favor selective exposure to higher-yielding and pro-growth currencies. The bank rates the Swedish krona, New Zealand dollar, Australian dollar, British pound, Chinese yuan and, newly, the Norwegian krone as attractive, citing resilient economic fundamentals and supportive carry opportunities.
UBS maintained a neutral stance on the euro, forecasting the euro-dollar exchange rate to remain in a 1.14-1.20 range before gradually strengthening as lower energy costs and fiscal support benefit Europe while expectations for further U.S. rate hikes fade. The Swiss franc is expected to underperform as it remains the preferred funding currency.
In emerging markets, UBS said interest-rate carry should remain the primary driver of returns after strong spot gains in recent quarters. It favors diversified exposure to high-yielding currencies including the South African rand, Brazilian real, Mexican peso and Indian rupee, while taking a more cautious view on the Turkish lira due to a less favorable medium-term risk-reward profile.
UBS warned that the outlook remains highly dependent on oil prices and the evolution of the Middle East conflict. A renewed escalation that disrupts energy supplies could strengthen the U.S. dollar, trigger broader risk-off sentiment, and weigh on higher-yielding currencies.
