Overview: The waves of doubt 

We believe the USD is gradually transitioning to a stronger path due to moderating global growth and the Fed edging closer towards eventual rate hikes. While we acknowledge Fed tapering may not lead to an immediate reaction and impact on the USD, we have little doubt this should set the course for wider policy divergence to play out for exchange rates.

AUD: Headwinds but not a storm for the four “C”s

We see modest AUD weakness in the months ahead. Adding COVID-19 to the traditional three “C”s – commodities, China and carry – we highlight why the AUD is likely to face some ongoing challenges, but why the downward move from here is likely to be limited rather than aggressive.

Digital dollar: The analogue debate

We look into the speeches delivered by Fed board members and Janet Yellen to gauge their take on the US CBDC and how it might be carried out. It seems US regulators have divergent opinions on the need for a digital USD and the best way to design it. This indicates the US CBDC will likely lag other major central banks. There are wide-ranging issues around the introduction of a digital USD, but we address the debate and broader discussions around them.

JPY: Opposing forces

On the one hand, the JPY is an anticyclical and safe haven currency like the USD, and should outperform against slowing global growth momentum. But on the other hand, the JPY is very sensitive to rising front-end US yields as the Fed edges closer to policy normalisation. We believe USD-JPY will only grind slightly higher because of these opposing forces.

NOK and SEK: Global beats local 

 We expect NOK and SEK to weaken in the months ahead as both currencies are highly exposed to slower global growth and the sluggish nature of the European recovery. However, we continue to favour the NOK over the SEK due to the clear divergence in monetary policy normalisation.

FX Market: August 2021

For those who are looking for a review of what happened over the last month, we present a market review of August. We consider the main drivers and key events which moved markets.