Why the US dollar will continue to rise next year

The US dollar has already marked remarkable rise against other major currencies in anticipation of the Fed's decision on interest rates. According to experts from US investment bank J.P. Morgan, however, the growth of the dollar will continue next year.

"It feels like the market is probably already paying back a little bit of its long dollar positioning… We could potentially see a little bit of a dollar pullback but probably nothing beyond 1 percent in terms of the majors," said J.P. Morgan's head of EM Asia FX strategy, Jonathan Cavenagh.

There could be some profit-taking ahead of the year-end but any decline beyond 1 to 2 percentage points presents a buying opportunity, he said.

The bank anticipates the Fed to hike rates another four times next year driven bysupply-side dynamics as unemployment and labor participants rate fall, drivingwage growth and inflation.Higher interest rates should underpin the dollar as other central banks aremore likely to provide additional stimulus.

Next year, there is upside for the U.S. dollar against Asian currencies with a"strong risk" of further devaluation in the Chinese yuan through2016, said Cavenagh.

The house is forecasting a 4 to 4.5 percent weakening of the CNY against the USD. The yuan iscurrently trading at 6.46 against the dollar, near a four and a half-year low.The Chinese central bank devalued the yuan in August to support flagginggrowth.
Other Asian currencies may face further downside risks if commodity pricesweaken or countries face domestic headwinds, Cavenagh added.

"If you look at how the growth differentials between Asia and the rest ofthe world have been performing, they have generally been narrowing, so this ismore about a reflection of what is happening in terms of the underlyingfundamentals. Next year Asia is going to attract less capital inflows etc;places like the US and Europe are going to be more attractive."