Top FX forecaster in 2014: U.S. dollar to extend rally - Reuters poll

Top FX forecaster in 2014: U.S. dollar to extend rally - Reuters poll

© Murad Sezer / Reuters

The dollar has had an almost uninterrupted run against a basket of currencies, rising almost 16 percent in the last six months, on expectations the Federal Reserve will hike interest rates this year, the first move since December 2008.

But that rally stopped over the past month.

Paul Bednarczyk, head of research at 4CAST and top forecaster in last year's StarMine FX rankings, expects the dollar's climb to resume as loose monetary policy elsewhere causes most foreign exchange rates to weaken against the greenback.

"Basically, if you get the dollar right, then you're not doing too bad," said Bednarczyk.

"We still see the dollar in a pretty good position especially since oil is still cheaper so it will just be a continuation of last year's story. We are going to see a fairly static year and a bit of a wiggle from commodity currencies."

Brent Crude prices fell more than 50 percent in the second half of 2014, pushing the Canadian and Australian dollars, among other commodity-driven currencies, to weaken by almost a fifth.

Asked if this drop took him by surprise, Bednarczyk said, "It sort of did. I think the Canadian dollar took most of the strain there. We got quite a good call that said 'sell Canada'."

The Fed and the Bank of England remain the only major central banks expected to tighten policy any time soon. Their peers in Canada, Switzerland, India, Australia and other countries have been steadily lowering benchmark rates.

But a modest rebound in energy prices in the last two months has not convinced analysts of a turnaround in the fate of these currencies as they left forecasts more or less unchanged in the latest poll.

The idea the dollar will rally further this year is not much in doubt. For now the euro -- the second most traded currency worldwide -- is being held back by the ECB's 60 billion euro monthly bond-buying program starting this month, according to 4CAST's Bednarczyk.

But the latest Reuters poll consensus shows much of the euro's slide has run its course and broad dollar strength will only push it down slightly more in the coming year.

Whether ECB President Mario Draghi's plan will succeed in boosting inflation is unclear, Bednarczyk said, highlighting differences between the ECB's program and that of the Fed's, which injected almost 4 trillion dollars over six years.

"What are they going to buy? Obviously there are Bunds but the U.S. market is so much bigger I think they (ECB) are going to stumble a bit searching for bonds to buy."

Bednarczyk predicts the euro to weaken further and trade at $1.03 in twelve months.

(Reporting By Ashrith Rao; Editing by Toby Chopra)

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