Market Musings: 2025 Outlook
Read the 2025 Currency Outlook from Corpay Currency Research
As 2024 draws to a close the world economy is enjoying a moment of relative stability. Post-pandemic inflationary pressures have moderated. After aggressively tightening policy most of the major central banks, outside of the RBA and BoJ, are cautiously lowering interest rates. Cross-asset volatility has subsided, asset prices are high, and measures of financial stress remain low.
Will 2025 be more of the same or a different story? Time will tell; however, we think bursts of volatility are on the horizon as President-elect Trump’s policy agenda, which is focused on protectionist tariffs, tax cuts, and deregulation, is enacted. Importantly, these moves won’t be in a vacuum. Every action normally has an equal and opposite reaction. Economies such as China and the Eurozone that are facing potential trade headwinds could look to support domestic demand via stimulus measures. In the US the macro implications also aren’t clear cut as fiscal spending and higher import costs may not have the inflation, growth, or interest rate consequences many expect.
In our view, the undercurrents point to the USD remaining firm over H1 2025. But we believe it might gradually lose some ground later on. A lot of positives already look priced in, and much like the first Trump term, the reality may not match the hype. Closer to home, the NZD’s struggles are projected to continue. The shift down in NZ interest rates and sluggish economic backdrop are set to hold back the NZD, in our view. By contrast, while a firmer USD should act as an AUD ceiling, we don’t foresee if falling further, on a sustained basis, from already low levels. Markets are driven by outcomes compared to expectations and given the AUD is trading at a discount to our ‘fair value’ models a decent amount of ‘bad news’ is discounted. Moreover, anticipated outperformance on the cross-rates can offset the USD impact with diverging policy trends between the measured RBA and other more aggressive central banks predicted to give the AUD a helping hand against currencies such as the EUR, CAD, CNH, and NZD over coming quarters.
Our detailed 2025 outlook can be accessed here or via the link at the top of the email.
Peter Dragicevich
Currency Strategist - APAC
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