Money markets continued to push back strongly against G10 central bank communications throughout October and priced in aggressive tightening cycles across the space, resulting in bear flattening in most sovereign yield curves.
This led to broader USD weakness in most major pairs, with the exception of EURUSD and USDJPY, both of which bucked the broad G10 trend due to their positions within the G10 monetary space.
The Japanese yen broke out of its recent rage to trade back at 2018 levels, while the euro touched a fresh 15-month low.
The lifting of restrictions in Australia and New Zealand resulted in continued strength in AUD and NZD against the dollar, while a hawkish RBNZ was also favourable for NZD, which meant Monex’s bullish forecasts achieved solid near-term rankings for those currencies. Other notable rankings were seen in CAD given our expectation of a hawkish policy meeting which materialised, while the 1-month NOK and SEK forecasts also led to strong forecast results as increased inflation and policy expectations led to a rally in the Scandies. Beyond this, our mildly bullish long-term EURUSD led to Monex gaining third place in the 12-month ranking for USDCHF.
Our continued expectation of a mildly weaker Chinese yuan placed us well over the full forecasting horizon again in October. However, given near-term CNY outperformance, we now altered our yuan forecasts to reflect a more persistent, but mild, rally despite the cyclical headwinds. Meanwhile, in the rest of the EM space, expectations of continued action from the Central Bank of Russia saw Monex place within the top-5 EURRUB forecasts and top-10 USDRUB forecasts. Our bold forecast of the lira reaching another record-low placed us well in the short-term as the CBRT cut rates further by another 200bps after the 100bp surprise cut in September.
For MXN, not only did Monex rank as 1st over the 1-month forecast horizon, but all MXN forecasts over the entire horizon ranked among the top 5 forecasters given our view of limited upside in MXN despite inflationary pressures leading to sustained rate hikes.
For USDZAR, a conservative stance on the rand rally, despite spot levels sitting below 14.5 at the time the 3-month and 6-month forecasts were submitted, yielded strong medium-term results. Given the recent shift in USDZAR dynamics, our view has turned more bearish on the rand in the near-term, with our forecasts sitting above 15 for the 1-month and 3-month horizon in November.
Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst