Firmer USD likely to continue through 2016

After almost a decade, the U.S. Fed decided to hike its bank rate in mid of December. The economy is back on track, as growth rate picked up, and labor market has improved. On the other hand, the economy is expected to face higher inflationary pressure in near future.

The central bank is expected to deliver four more hikes next year, and thereby capital inflows will intensify. This will inturn strengthen the US dollar in the currency market. 

"Every Fed tightening cycle is different and how USD trades depends on the path of rates relative to expectations, the path of rates in the rest of the world, and the reasons why the Fed is hiking, amongst other things. In the current cycle, these factors generally argue for USD strength extending into 2016. We think the forward curve significantly understates the extent to which rates will rise through 2016 and this is against a background where most other central banks are on hold or easing", states RBC Capital Markets.