JPMorgan expects the Federal Reserve to raise rates again in December and maintains its call for a steeper U.S. Treasury curve. It remains overweight emerging-market currencies, but rate volatility and growth pressures are prompting the bank to narrow its selections. Meanwhile, economic growth in multiple countries is accompanied by falling oil demand.
BofA believes crowded long positions in AUD/NZD make the exchange-rate impact of the election asymmetric: a Labour-led government could push the rate up to 1.26, while a National Party government remaining in power could drive it down toward 1.21.
The average of Nomura’s four valuation measures shows the dollar is overvalued by 14.7% and Asian currencies are undervalued by 8.6% on average; meanwhile, emerging-market funds’ allocation to the Indian rupee has rebounded, and bond supply outlooks differ across Asian countries.
The Federal Reserve is shifting to a more gradual pace of rate hikes, while New Zealand unexpectedly holds steady; meanwhile, the link between AI stock volatility and the US dollar and some emerging-market currencies is strengthening.
Nomura has turned more bearish on the dollar amid weakness in US technology stocks and slowing inflows into securities; its highest-conviction trades are short USD/CNH and receiving Hong Kong short-term rates.
Bank of America’s quantitative indicators remain biased toward emerging-market currencies, but upward revisions to growth expectations have peaked and the dollar-weakness trade is fading. Interest-rate markets are diverging, while external debt positioning and valuations constrain the scope for a rebound.
Clients interviewed were generally bullish on US technology stocks and inclined to expect appreciation of the renminbi and Korean won. Nomura is more wary of the impact of a US equity pullback on USD/JPY and the won, and believes the renminbi could appreciate faster than implied by forward rates.
French risks are weighing on the euro, but pricing constraints affect both the dollar and sterling. BofA prefers to express a short euro position against the yen. Emerging-market carry returns have generally risen, masking the erosion of buffers in currencies that previously held up well.
Goldman Sachs maintains its baseline view of a moderately weaker dollar, but a slowdown in AI investment and an energy shock would push the dollar in opposite directions. The yen is better suited to hedging a cooling growth outlook, while the renminbi is supported by the trade surplus and its undervaluation.
Nomura has raised its conviction in a bullish offshore renminbi position, maintained its long Singapore dollar versus Indonesian rupiah and receive-fixed Hong Kong and Korean rates trades, and exited its position betting on higher Singapore rates. The central themes are slower inflows into US assets and safe-haven demand, but local policies and capital flows determine how much each market benefits.
