MTFX Currency Update, June 2024

 

FX Monthly Currency Forecast

Currency Pair

Jun 07, 2024 SpotJun 2024 (Q2)Sep 2024 (Q3)Dec 2024 (Q4)Mar 2025 (Q1)

USD/CAD

1.38

1.38

1.36

1.34

1.32

EUR/CAD

1.49

1.49

1.50

1.50

1.48

GBP/CAD

1.75

1.75

1.75

1.74

1.69

EUR/USD

1.09

1.08

1.10

1.12

1.12

GBP/USD

1.27

1.27

1.29

1.30

1.28

USD/JPY

157

154

152

150

148

USD/CHF

0.90

0.92

0.91

0.90

0.91

USD/CNY

7.25

7.25

7.22

7.18

7.15

USD/INR

83.50

83.00

83.00

82.00

81.00

AUD/USD

0.66

0.66

0.68

0.70

0.70

NZD/USD

0.61

0.60

0.60

0.61

0.61

USD/MXN

18.38

18.50

19.50

18.50

17.50

 

Currency Views

USD

The USD should be stronger based on short-term yield spreads. Its relative weakness reflects Europe's growth, which hasn't boosted yields due to declining inflation.  The Fed might cut rates in July, skip September, and reassess in the fall, but recent hawkish Fed commentary makes this a close call.

US election fever is rising, with President Trump's fraud conviction shifting focus to the US legal system rather than Trump himself. This could either embolden swing voters to support Trump or lead to voter apathy, benefiting Biden. Polls show Trump leading in swing states, but margins are narrow and within error margins. A Trump victory would strengthen the USD, but the election is on November 5th. If it coincides with Fed rate cuts, a slowing economy, and a weaker labour market, notable USD appreciation is less likely. 

CAD

Rate cuts have begun in Canada, signalling the Bank of Canada's recognition of the need for rate relief amid a sustained downward path for inflation and a surprisingly resilient economy. This is good news for borrowers, provided additional cuts follow. However, there are concerns about inflation risks due to rising wages, falling productivity, strong consumption, government overstimulation, and a potential housing market rebound. The housing sector, particularly, will benefit from lower rates in an undersupplied market.  If the Federal Reserve delays rate cuts while the Bank of Canada proceeds, the interest rate differential could widen, increasing downward pressure on the Canadian dollar and potentially hindering productivity growth due to higher import costs of capital goods.

 

USD/CAD June Forecast 1.38

EUR

The ECB rate cut on June 6 is unlikely to impact its performance negatively. Cautious guidance from President Lagarde is expected due to incoming economic data. Economic recovery indicators like the ZEW and Sentix indices, a rising Composite index, and stronger-than-expected CPI data support this. The euro-zone Economic Surprise Index relative to the US is at its highest since September 2021. The ECB might skip further cuts in July, with minimal cuts priced for September. The eurozone's economy is recovering from the energy price shock, and the external position is improving, enhancing the euro's stability. The ECB's current account balance has shifted from a deficit to a surplus, and net bond portfolio flows have turned positive since the end of negative rates. 
 

EUR/USD June Forecast 1.08

GBP

The pound advanced against the US dollar and on a trade-weighted basis, with the BoE TWI reaching its highest level since June 2016. This followed PM Sunak's announcement of a general election on July 4, with Labour leading by over 20 points in polls. The Labour Party needs a 14-point margin to secure a majority in parliament. Yields remain the key driver for the pound. Expectations for BoE rate cuts this year have decreased, driven by disappointing CPI data. The BoE has shifted to a more optimistic inflation outlook, delaying rate cuts likely until August. This delay, along with signs of UK economic recovery, has supported the pound. Despite this, supply-side inflation and a weakening labour market suggest rate cuts are likely, limiting GBP out-performance.

 

GBP/USD June Forecast 1.27

JPY

In May, the yen marginally advanced against the dollar but was the worst-performing G10 currency. Low FX volatility fueled JPY's underperformance alongside CHF. Short-term improvement seems unlikely due to low yields. Increased market volatility or Fed rate cut speculation is needed. The BoJ is signalling potential rate cuts, with Governor Ueda and Deputy Governor Uchida highlighting structural labour shortages and rising wages. Board member Adachi mentioned potential rate hikes if yen depreciation impacts inflation. However, hawkish rhetoric alone won't strengthen the yen; actions like rate hikes, QE tapering, and QT are needed for greater support. 
 

USD/JPY June Forecast 154

CNY

Unlike some Asian peers, the CNY did not strengthen against the US dollar despite a 1.3% decline in the dollar due to weaker-than-expected economic data and limited policy stimulus from China. While industrial production grew, domestic consumption and the property market remained weak. The government introduced measures to support the property sector, but equities reacted negatively. Continued economic weakness is indicated by recent PMI readings, partly due to slow government spending and delayed bond issuance. Improvement in fiscal spending and faster bond issuance are expected to support the economy and the currency, with the USD/CNY rate likely to stay around current levels until growth recovery signals provide support. 
 

USD/CNY June Forecast 7.25

INR

A positive outlook on the INR is anticipated, though the 2024 General Elections could introduce market volatility as Modi will have to govern in a coalition after losing the majority in the elections. Forecasts assume policy continuity, supporting INR through resumed inflows. India's economic fundamentals are robust, with a manageable current account deficit at 1.3% of GDP, expected bond index inclusion inflows, and improved FDI. While recent foreign equity market selling was election-driven, flows should resume post-elections. The RBI will likely cap USD/INR fluctuations to curb FX volatility, though modest dollar weakness might limit INR gains. 
 

USD/INR June Forecast 83

AUD

The Australian dollar strengthened notably, with all G10 currencies advancing against the US dollar. US yields were higher relative to many other G10 countries due to Fed higher-for-longer expectations, with the 2-year AU-US, spread favouring the US dollar by 10bps. However, increased optimism over global growth undermined the US dollar. European data showed improvement, and China took steps to revive the real estate sector, boosting domestic demand. Commodity prices responded, with the Bloomberg Commodity Index rising. Australia's inflation isn't falling as expected, with the annual rate picking up to 3.6% in April. The RBA has signalled potential tightening but might hold off due to gradually weakening growth. The reduced scope for RBA cuts will support the AUD, which is likely to advance further, assuming a global soft landing. 
 

AUD/USD June Forecast 0.66

NZD

The New Zealand dollar strengthened and was among the top-performing G10 currencies. Subdued FX volatility and reduced US divergence led to stable trading ranges and increased carry-trade appetite, benefiting the NZD. Leveraged Funds significantly reduced short NZD positions. The RBNZ's hawkish stance helped lift yields, with Governor Orr emphasizing the need to address inflation. Improved global growth optimism and policy measures from China supported the NZD. However, periods of uncertainty, higher volatility,, and potential economic slowdown in New Zealand could impact NZD performance, with expected fluctuations in NZD/USD. 
 

NZD/USD June Forecast 0.60

MXN

The Mexican peso fell 7% against the dollar last week, marking its largest decline since the Great Financial Crisis in October 2008. This was driven by concerns over potential constitutional changes after the Morena party secured a significant majority in the elections, raising investor worries about AMLO's advocacy for the popular election of Supreme Court judges. These institutions are seen as crucial checks on populist policies. Market positioning exacerbated the peso's fall, with asset managers heavily invested in Mexico and speculators holding substantial long peso positions. Despite softer-than-expected May CPI, the peso's depreciation suggests Banxico may hold off on rate cuts at its June 27 meeting, with the swaps market pricing in about 40 basis points of cuts in the second half of 2024. 
 

USD/MXN June Forecast 18.50


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