MTFX Currency Update, July 2024
FX Monthly Currency Forecast
Currency Pair | Jul 04, 2024 | Sep 2024 | Dec 2024 | Mar 2025 |
USD/CAD | 1.3615 | 1.37 | 1.37 | 1.37 |
EUR/CAD | 1.4721 | 1.46 | 1.46 | 1.46 |
GBP/CAD | 1.7374 | 1.73 | 1.73 | 1.74 |
EUR/USD | 1.0812 | 1.07 | 1.07 | 1.07 |
GBP/USD | 1.2760 | 1.27 | 1.27 | 1.27 |
USD/JPY | 161.27 | 152.67 | 149.00 | 147.00 |
USD/CHF | 0.9001 | 0.91 | 0.90 | 0.90 |
USD/CNY | 7.26 | 7.33 | 7.33 | 7.33 |
USD/INR | 83.50 | 83.20 | 83.10 | 82.75 |
AUD/USD | 0.6728 | 0.66 | 0.67 | 0.67 |
NZD/USD | 0.6116 | 0.63 | 0.64 | 0.64 |
USD/MXN | 18.09 | 18.67 | 18.83 | 19.17 |
Currency Views | |
| USD | In June, the US dollar strengthened due to several factors. Despite weak US inflation and a weakening labour market causing a drop in the 2-year UST bond yield, the dollar remained resilient, supported by a sharper decline in European yields amid France's election uncertainty. This fall in US yields signalled confidence in easing inflation and potential Fed action. Labour market indicators like increased claims and layoffs highlighted easing demand, with weaker jobs growth in NFP data pointing to a potential turning point for rates and the dollar. While the Fed is cautious about cutting rates, a quick pivot is possible if jobs data weakens further, with cuts anticipated in September and the year's final two meetings. |
| CAD | USD/CAD peaked just below 1.3800, but momentum for divergence between Canada and the US has since faded. Despite the FOMC reducing expected cuts and the BoC cutting rates, weak US CPI outweighed rate guidance. If the "higher for longer" belief fades, so will expectations of policy divergence between the US and Canada. Another BoC cut in July is possible but less likely after Canada's stronger CPI. Given CAD's stability and anticipated weaker US data, a July cut remains probable, gradually strengthening the Canadian dollar. |
| EUR | President Macron's snap elections increased near-term risks. High turnout led to more three-candidate constituencies. Marine Le Pen's RN won the first round, but an RN majority is unlikely, reducing market impact despite moderated policies and cooperation with Macron, a hung parliament is expected, delaying government formation. Consequently, EUR/USD forecasts for Q3 and Q4 have been lowered. The ECB plans more rate cuts and faster balance sheet reduction, contrasting with the Fed's slower pace. Short-term EUR/USD risks exist, but an RN victory without a majority is unlikely to cause a sustained sell-off, with expected Fed rate cuts supporting modest EUR/USD increases. |
| GBP | The pound weakened against the US dollar but advanced against the euro due to political risks in France. In the UK, the Labour Party is expected to win a large majority in the upcoming general election, contrasting with Europe's political landscape. Labour's cautious economic policies aim to build voter trust and focus on wealth creation and business confidence. The UK's inflation rate recently hit the Bank of England’s target for the first time since 2021, leading to expectations of monetary easing with rate cuts anticipated in the coming months. Increased consumer and business confidence and falling inflation support a scenario of gradual economic growth and stable inflation by 2025. |
| JPY | The yen has weakened significantly, reaching lows not seen since 1986 due to Japan's deeply negative policy rate. Despite expectations, the Bank of Japan (BoJ) did not slow JGB purchases, highlighting a slow policy shift. Consequently, the yen hit new lows, reflecting investor sentiment that global central banks will only gradually cut rates amid persistent inflation. The BoJ is expected to raise the policy rate by 15bps and slowly reduce JGB purchases, initially supporting the yen. However, the yen's weakness, driven by BoJ caution and the Fed's prolonged hawkish stance, is expected to reverse, strengthening the yen eventually. |
| CNY | The dollar's strength, driven by delayed Fed rate cuts, weak EUR and JPY, and stronger US economic fundamentals, contributed to the CNY’s depreciation. China’s weak domestic economy and negative market sentiment also played a role. Despite stabilization efforts, USD/CNY fixing has increased slightly, sparking speculation about further depreciation. However, the RMB has performed relatively better than the euro and yen. With expectations of a weaker dollar in Q3 and Q4 and potential improvements in China's economy, downside pressure on USD/CNY is anticipated. If the offshore RMB fluctuates significantly, the central bank may adjust liquidity to limit its weakness. |
| INR | USD/INR is forecasted at 83.0 by year-end, with a positive outlook on INR and expected low volatility despite recent election results. Policy and reform continuity with a stable coalition is key, though major supply-side reforms are unlikely. The macro-environment remains favourable for INR FX and rates markets. Contributing factors include anticipated bond index inclusion, a manageable current account deficit, expected FDI increase post-election, and gradually lowering inflation influenced by weather and Monsoon conditions. The RBI is expected to curb FX volatility, with INR underperformance likely due to modest dollar weakness and RBI interventions limiting rupee gains. |
| AUD | In June, the Australian dollar strengthened modestly against the US dollar. The Reserve Bank of Australia (RBA) held the key rate at 4.35% after significant hikes, with minimal expectations for a cut this year. Australia’s economic data is mixed, showing weak Q1 GDP but a strong labor market. RBA Governor Bullock suggested further hikes might be needed due to slow inflation decline, with a potential hike in August or September if Q2 CPI is high. Additionally, the new government budget providing stimulus supports the AUD as the Fed eases policy. |
| NZD | New Zealand's economic slowdown is more pronounced than Australia's, likely prompting the RBNZ to cut rates sooner. Retail spending has declined for four consecutive months, and real manufacturing activity contracted in Q1. Although Q1 GDP ended the recession, key sectors remain weak, and real GDP per capita has declined for six straight quarters. The upcoming Q2 CPI data in July might lead to an earlier rate cut, possibly by November. While a more active Fed cutting rates could boost NZD/USD, weak NZ growth may cause the NZD to underperform. |
| MXN | The peso saw significant depreciation after Claudia Sheinbaum's election victory raised concerns about judicial and energy sector changes. It has since recovered slightly due to Sheinbaum's independent leadership and Marcelo Ebrand's appointment as Economy Minister. However, the peso may weaken further through 2024 before recovering in 2025. Despite political uncertainty and strong inflation data, Banxico's decision to hold rates at 11.00% and signal future cuts seems ill-timed. Potential US political changes could also impact trading relations. Despite this, Mexico's current account surplus and moderating inflation support the peso. |
Use Historical Currency Exchange Rates tool for observing historical rates.
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