Monthly Forecast: September 2019

Foreign Exchange - Monthly Forecast
September 2019
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Analyst
The USD index (DXY) set a new YTD high in August despite the Fed delivering its first interest rate cut in over a decade. This, in a nutshell, illustrates what is going on with the USD. While the US economy is slowing, the economy and US interest rates remain relatively better than the rest of the world. This dynamic continues to attract flows that have supported the dollar. As such, the USD is up against 70% of the G10 currencies on a YTD basis despite US yields falling. Read more...
The JPY has appreciated due to safe haven flows as trade tensions have stepped up. While the US stepped back some of the tariffs on China it announced earlier, the escalation in tensions matters more than the delay. Ultimately, total tariffs are now higher and delayed tariffs simply means the negative impacts are just delayed, leaving safe haven assets in demand. Read more...
Throughout the year, the forecast for the euro has had an upward sloping trajectory. This was an attempt to capture the near term cyclical weakness in the eurozone as well as the structural support the single currency enjoys over the longer term. As a reminder, the euro enjoys the strongest balance of payment position in the G3 as well as cheap valuation relative to the USD. Read more...
The pound outlook finds itself simultaneously simple and complex. It's simple because it's all about Brexit. It's complex because it's all about Brexit with all options on the table and little visibility as to what is the consensus path. Read more...
In our past currency outlook we envisioned near term strength, due to better economic data and an on-hold BoC, that would eventually lead to longer term weakness as the BoC cuts due to a slowing domestic economy as well as to keep pace with the Fed. Read more...
We have held a bias for AUD weakness, and that outlook has been reinforced by the re-escalation of trade tensions even with the RBA looking to pause its rate cutting cycle over the next couple months. While the RBA has increased the bar required for further easing by indicating the need for "additional evidence" to support a cut, an easing bias remains. It will likely take a particularly weak GDP print for an October cut, otherwise November remains in focus. Read more...
The yuan finally broke through the psychologically important 7 yuan to 1 USD level this month. While the US's surprise decision to implement additional tariffs sparked the move, the PBoC's decision not to push as forcefully against depreciation, as in the past, gave markets the greenlight to move higher. Likely, this was a decision on China's part to use currency depreciation to buffer the negative effects of tariffs amid a worsening domestic economic backdrop. Read more...
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