MTFX Currency Update, March 2024

Monthly Currency Rate Chart Showing Comparison of G10 Currencies with USD

 

FX Monthly Currency Forecast

Currency Pair

Mar 04, 2024 SpotMar 2024 (Q1)Jun 2024 (Q2)Sep 2024 (Q3)Dec 2024 (Q4)

USD/CAD

1.36

1.35

1.31

1.33

1.33

EUR/CAD

1.47

1.45

1.48

1.50

1.50

GBP/CAD

1.72

1.71

1.70

1.70

1.71

EUR/USD

1.09

1.08

1.09

1.11

1.13

GBP/USD

1.27

1.26

1.29

1.31

1.33

USD/JPY

150

147

144

141

139

USD/CHF

0.88

0.88

0.88

0.88

0.87

USD/CNY

7.20

7.25

7.23

7.07

7.03

USD/INR

82.92

83.00

82.50

82.00

81.75

AUD/USD

0.65

0.66

0.66

0.69

0.70

NZD/USD

0.61

0.61

0.62

0.63

0.64

USD/MXN

16.95

17.45

17.63

17.60

17.62

 

Currency Views

USD


The US dollar was unchanged in  February despite significant shifts in rates markets. The 2-year US Treasury (UST) note yield surged notably, driven by a robust US employment report and strong CPI figures. This led to a significant reduction in rate cut expectations compared to the end of January. While previous expectations of rate cuts were considered excessive, the current outlook appears overly cautious. The Federal Reserve (Fed) may delay rate cuts until mid-year, but weakening growth and inflation nearing target levels could prompt cuts at subsequent meetings. Despite ongoing optimism regarding US economic resilience, certain key factors supporting the economy, such as fiscal stimulus and excess consumer savings, are diminishing. Concerns about commercial real estate and recent declines in retail sales and manufacturing production further underscore economic challenges. With consumer confidence declining and small business optimism at a low, forward-looking indicators may offer better insights than lagging indicators. Consequently, the USD is anticipated to hold steady in the near term before weakening notably in the second half of the year due to the Fed's actions. However, the prospect of the US election may limit the extent of dollar depreciation.

 

CAD


Throughout February, market sentiment initially postponed the anticipated first rate cut by the Bank of Canada (BoC) from June to July due to stronger-than-expected jobs data and resilient growth in Q4 '23. However, the timing was eventually brought forward to June again following a downside surprise in inflation. While economists maintain the forecast for the first rate cut in June, there's a risk of an earlier cut in April if domestic data weakness persists. USDCAD is likely to remain stable until the next catalyst triggers a broader USD movement. The overall macroeconomic backdrop remains unchanged, suggesting potential for significant CAD appreciation in the second half of 2024. The quarterly forecast for USD/CAD remains unchanged, with the pair expected to hover around the 1.34-1.35 range in the first half of the year before declining to 1.30 by year-end. However, the Canadian dollar could weaken dramatically, if the BoC initiates its rate-cutting cycle significantly earlier than the Fed.

 

USD/CAD Forecast - Q1 2024: 1.35 | Q2 2024: 1.31

EUR


The euro experienced marginal weakening against the US dollar but maintained its position as the third-best performing G10 currency.  However, FX market movements were subdued, with EUR/USD 3-month implied volatility reaching its lowest level since January 2022. While initially favoring US dollar strength, expectations of rate cuts by central banks, including the Fed, have moderated, leading to uncertainty regarding the EUR/USD direction. Incoming economic data suggests a potential pick-up in growth in Europe, with industrial production showing a significant increase in December and the advance Services PMI reaching its highest level since July. Despite this, the disinflation trend is expected to continue, with inflation declining faster than anticipated by the European Central Bank (ECB). Although a rate cut by the ECB in April seems plausible, recent communications hint at a consensus leaning towards considering a cut in June. Plunging FX volatility reflects the widespread expectation of future rate cuts, with both the Fed and ECB pricing in similar cuts for the year. While some improvement in European growth may support EUR appreciation, US election risks could limit this upward trend in the fourth quarter.


EUR/USD Forecast - Q1 2024: 1.08 | Q2 2024: 1.09

GBP


In February, the pound weakened against the dollar and euro, yet it remained stronger compared to most other G10 currencies, standing as the second best performer year-to-date after the dollar. The Bank of England (BoE) revised its inflation forecasts lower during its February meeting, anticipating hitting its target in Q2, but projecting a rise above target to 2.75% by year-end, maintaining a cautious stance despite sharper-than-expected declines in inflation. The upcoming budget may include tax cuts and potential surprises ahead of an election, complicating the disinflation process. Despite this, the economy appears to have stabilized, with improving business and consumer sentiment as the inflation shock eases. While the pound may strengthen initially, it is expected to underperform in the latter half of the year. BoE's caution on rate cuts remains, supported by higher wages and sticky services CPI, despite moderate growth improvements.

 

GBP/USD Forecast - Q1 2024: 1.265 | Q2 2024: 1.295

JPY


In February, the yen saw a significant decline due to low FX volatility, high foreign yields, and strong risk appetite, leading to increased selling. Japan's equity markets, notably the Nikkei 225, reached a milestone by surpassing its previous record high from December 1989, reflecting the impact of corporate reforms. Share buybacks have surged as companies prioritize efficiency and shareholder returns. Despite the Nikkei's performance, Japanese households still hold a substantial portion of their wealth in cash deposits. BoJ Governor Ueda's confidence in achieving price stability hints at a possible rate hike in March or April, which could stimulate consumer spending and wage growth amidst a shrinking working-age population. A BoJ rate hike and signals of future hikes may bolster the yen's recovery, though sustained strengthening might require rate cuts by other G10 central banks.

 

USD/JPY Forecast - Q1 2024: 146.7 | Q2 2024: 144

CNY


Amid global economic shifts, the People's Bank of China (PBOC) opting to maintain the MLF policy rate aims to stabilize the Chinese Yuan (CNY) exchange rates, supported by stronger domestic policy initiatives such as promoting large-scale equipment upgrades and attracting foreign investment. Recent high-level meetings underscore the government's commitment to economic stability, with anticipation of positive signals from the upcoming National People's Congress (NPC) meeting on 5th March. This, alongside recent improvements in Northbound portfolio investments, could potentially support a modest rally in the CNY in March.

 

USD/CNY Forecast - Q1 2024: 7.25 | Q2 2024: 7.23

INR


The positive outlook for the Indian Rupee (INR) remains unchanged, with the balance of risks favoring INR strength. This view is supported by several factors. Firstly, a manageable current account deficit for India is anticipated, with improvements in the services balance and gradual oil price increases expected. Secondly, robust portfolio inflows are foreseen, driven by bond index inclusion from June 2024, sustained economic growth, and continuity in policy post the upcoming General Elections. Thirdly, Foreign Direct Investment (FDI) is displaying signs of recovery, with expectations of gradual improvement given a strong investment pipeline. Recent macroeconomic indicators from February 2024 further reinforce this view, with both manufacturing and services PMIs showing growth, contained trade deficits, rising services exports, and positive high-frequency indicators such as vehicle sales. USD/INR is projected to hover around current levels before potentially moving towards other levels in the latter half of 2024 as per prevailing market expectations of a weaker US dollar.

 

USD/INR Forecast - Q1 2024: 83.00 | Q2 2024: 82.50

AUD


The Australian dollar dipped a little in February, but there wasn't a big change because currency voltaility was very low. Looking ahead, the outlook for the year is fairly optimistic. There's a chance that the global economy might decelerate smoothly, avoiding a crash, which would be beneficial for the Australian dollar. Additionally, early indicators suggest that Australia's economy may perform better than initially anticipated. While inflation remains a concern, it's not escalating rapidly, suggesting that Australia's central bank might ease up on its strict measures later this year. Global economic conditions, including those in China, will play a role in future decisions, but a favorable global scenario could see the Australian dollar strengthen.

 

AUD/USD Forecast - Q1 2024: 0.66 | Q2 2024: 0.67

NZD


The Mexican peso is the top performing currency globally, gaining almost 1% against the US dollar. The peso has been doing well because of a solid economy in Mexico, attractive interest rates for investors, and stable currency movements. However, the peso might start to lose value soon. This could happen if Mexico's central bank (Banxico) shows signs of reducing interest rates, especially if Mexico's manufacturing and sales figures are not as strong as expected. This might lead to Banxico lowering their rates before the US does, which could affect the peso's strength. 


NZD/USD Forecast - Q1 2024: 0.61 | Q2 2024: 0.62

MXN

The Mexican peso weakened in January due to strong US economic data. Factors like carry trades, remittances, and manufacturing exports, which supported the MXN in 2023, may now present challenges. November saw remittances grow by just 1.9% year-on-year, the smallest increase since April 2020. Vehicle production fell 9.9% year-on-year in December, marking the first drop since April 2022 and the largest since December 2021. Upcoming presidential elections in Mexico and the US, along with potential volatility from Trump's actions, could add further uncertainty to the peso's outlook.

 

USD/MXN Forecast - Q1 2024: 17.45 | Q2 2024: 17.63


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