A monthly commentary/summary that discusses our broader, long-term currency analysis.
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Andrew Kositkun Foreign Exchange Analyst
Over a one month period, the USD index (DXY) has been fairly unchanged, but the month-long view hides the intra-month volatility that has hit the USD. The beginning of the month saw the dollar strengthen due to an escalation in trade tensions and growth downgrades. Subsequently, the markets received more positive news with US-China talks, and soft US data saw the USD unwind some of its gains. While a pushback in the scheduled US October 1 tariffs and additional agricultural purchases from China are positives, we would advise caution on the trade front as history has shown fragility of trade progress. Read more...
After hitting a YTD low in August, USDJPY has rebounded. A key reason for this has been the Japanese investors' strong appetite for overseas investments as illustrated by an uptick in Japanese demand for foreign bonds during the last week of August. This increase in overseas investments, despite continued concerns from US-China trade tensions and Brexit risks, illustrates the structural nature of this demand as Japanese investors have little choice but to continue to invest maturing Japanese government bond proceeds into foreign securities. Read more...
At its last meeting, the ECB delivered a comprehensive easing package. The ECB cut rates, re-started QE in an open-ended fashion, and gave forward guidance for interest rates to stay low until inflation moves sufficiently and sustainably close to its target. Read more...
Over the past month, the GBP has been the clear outperformer within the G10 space. This move up in for the sterling was due to a reduction in the risk for a "no-deal" Brexit by the end of October. The key events that changed market sentiment include the Supreme Court's decision that PM Johnson's suspension of Parliament was unlawful and, more importantly, the passage of the Benn Law which requires the government to seek an extension to Article 50 if a deal cannot be struck by October 19. Read more...
Over the second half of the year, the CAD has outperformed safe haven currencies such as the Swiss franc and Japanese yen despite multiple escalations in the US-China trade war and growing global growth concerns. Read more...
The main drivers for the AUD throughout the end of the year remain the same from past outlooks, and as such, we continue to hold our bias for a weaker currency. The global economy remains under pressure and trade tensions between the US and China persist. Given the AUD's exposure to global trade, the continuing uncertainty from escalating and de-escalating trade tensions between the US and China sets the stage for the AUD to remain under pressure. These external factors only serve to amplify the weakening domestic economy with weak wage growth and inflation below target. Read more...
After breaking through the psychologically important 7 yuan to 1 USD level last month, the USDCNY has moved lower on the month. This move towards yuan strength was driven by improved news flow from US-China talks and is in line with the narrative that trade talks drive the CNY. Read more...
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