It was one-way traffic in FX markets for a large part of September as growth and inflation concerns mixed with increasingly hawkish central bank messaging and systematic risk from China. Traders took refuge in the US dollar in this environment, while other safe havens experienced risk-off inflows throughout most of the month. However, rising DM yields towards month-end even saw the dollar post gains against other traditional safe haven currencies like JPY and CHF.
The dollar claimed the most ground against open market economies, including high yielders such as HUF and BRL, while gains were more limited against petro-currencies as benchmark oil prices rose over 9% on the month.
The sharp rise in the broad dollar, especially against major G10 currencies, in the last few days of September meant that Monex’s 1-month GBPUSD and EURUSD forecasts didn’t return a high ranking. However, our more neutral stance on euro-crosses and on AUD and NZD resulted in solid near-term rankings. In the EM space, it was business as usual, with notable rankings in MXN, RUB and TRY.
Monex’s 1-month forecast rankings improved in September, with notable rankings in euro crosses and the Antipodeans. Broad weakness in the euro in September offset the impact of a stronger dollar against CHF, SEK and NOK, meaning our neutral views on the crosses yielded strong forecast results.
Meanwhile, our expectation of mild upside in AUD and NZD in the near-term placed us well among a more bullish forecasting field as both currency pairs closed the month out marginally lower against the dollar.
Over the medium-term, our structural views on economic recoveries within the G10 space resulted in multiple top-10 rankings.
Our expectation of a mildly weaker Chinese yuan placed us well over the full forecasting horizon despite the limited CNY volatility in September.
Meanwhile in the rest of the EM space, expectations of sustained rate hikes in Russia saw Monex place within the top-10 USDRUB forecasts.
Expectations of political intervention or a policy misstep in Turkey, which would send the lira to fresh all-time lows, played out in September when the CBRT cut rates by 100bps and the lira fell to just shy of the 9.00 handle against the US dollar. A retracement in the rand after it hit fresh 2 ½ month highs against the dollar also yielded strong medium-term forecast ranking. At the same time, our view of limited upside in MXN and BRL despite sustained rate hikes meant we remained among the top forecasters over Q3.
Author: Simon Harvey, Senior FX Market Analyst