Currency Outlook September

The below key drivers are likely to impact investor risk sentiment and FX markets in September

  • US Federal Reserve and the European Central Bank are both expected to cut interest rates in September. Speculation whether the cuts might be 25bps or 50bps remains.
  • A possible US recession is contributing to volatility across the major currencies. US Inflation may be down, but disappointing unemployment data is concerning markets.

Read on for insights into factors affecting the key currencies, or download as a PDF.

EUR Euro

In August, the EURUSD reached a 12-month high, due to USD weakness. While services PMI data exceeded expectations, manufacturing underperformed. September’s ECB interest rate decision will be key for currency direction.

The euro was fairly steady in August as there were no central bank policy decisions or unexpected data releases for the Eurozone. EURUSD tracked higher throughout the month, however, this was more to do with USD weakness due to concerns about the US economy’s health.

EURUSD posted a four-cent gain over a 3-week period with the pair touching US$1.12 on August 23, its highest level in over a year.

On the data front, monthly PMI numbers saw the service sector exceed estimations but the manufacturing sector continued to struggle. Only the French Services PMI was the outlier. The Olympics was likely the cause of the 55.0 reading, far beating the estimate of 50.2 and was the highest reading since April 2023.

Also in France, former EU Brexit negotiator, Michel Barnier was appointed as French Prime Minister on September 5, with many hoping the experienced politician can find common ground in the divided parliament.

This month’s main event will be the European Central Bank’s interest rate decision due on September 12. There is a chance the Bank could unveil a 50bp rate cut as inflation remains close to target and concerns about the health of the German economy continue.

Expected ranges:

  • EURGBP 0.8333–0.8560
  • EURUSD 1.0825-1.1200

GBP Sterling

After a rocky start in August, the pound rebounded, boosted by US rate cut expectations and cautious comments from the Bank of England on inflation and potential rate decisions.

At the start of August, the pound was rocked by stock market volatility but rapidly recovered over the next couple of weeks to reach US$1.32 by August 23. It’s the first time GBPUSD has been that high since March 2022.

The main driver of the increase was indication from US Federal Reserve Chairman, Jerome Powell that US interest rates needed to be cut. However, commentary from Bank of England (BoE) Governor, Andrew Bailey also added some pressure to the pound’s upward trajectory. Speaking at the Jackson Hole Economic Symposium in Wyoming, Governor Bailey indicated it was “too early to declare victory” over inflation in the UK, which means we may see interest rates held at their current 5%. The next BoE policy meeting is on September 19. Experts will be watching closely for any indication of upcoming cuts.

Other events markets will be watching is the CPI data, due September 18, which is likely to influence the BoE’s interest rate decision the day after. Beyond that is the UK retail sales month-on-month and the monthly PMI readings, due September 20 and 23 respectively.

Expected ranges:

  • GBPUSD 1.2840–1.3300
  • GBPEUR – 1.1680–1.2000

AUD Australian dollar

The Australian dollar rebounded in August on hopes of US rate cuts but faced renewed pressure from domestic growth concerns and falling commodity prices, keeping markets volatile.

After sliding below US$0.65 amid elevated fears of a US recession, the AUD began to steadily climb as concerns abated and focus shifted back toward the promise of US rate cuts.

With US inflation pressures easing, the US Federal Reserve (Fed) has shifted its attention to the second side of its dual mandate, the labour market. With the RBA maintaining a hawkish stance, the gap in yields is expected to narrow quickly. With the USD on the back foot, the Australian dollar advanced to mark a fresh 2024 high above US$0.68 before sliding back to US$0.67 through early September.

Australia’s Q2 GDP data painted an anaemic picture with the economy only saved from recession by government spending and migration. In fact, without migration the economy would have marked its 6th consecutive quarter of negative growth, a stretch not seen since “the recession we had to have” in the early 90’s.

The Fed policy meeting will likely be key in shaping near-term direction. The US non-farm payroll data for August showed further deterioration in labour market conditions. Analysts remain divided on whether policymakers should reduce rates by 25 or 50 basis points.
As we close in on the September 18 policy council, we expect pricing and ranges to narrow. In the interim we look to the first US presidential debate between Harris and Trump and US CPI inflation numbers. With vastly different policies and agendas in play volatility is expected across financial markets.

Expected ranges:

  • AUDUSD 0.6400–0.6900
  • AUDGBP 0.5000-0.5300
  • AUDNZD 1.0800–1.1050
  • AUDEUR 0.5950–0.6150

NZD New Zealand dollar

The New Zealand dollar rebounded in August on hopes of a US rate cut, despite concerns of a domestic recession, keeping markets focused on key US economic events ahead.

The New Zealand dollar was among the stronger performing major currencies through August, recovering losses suffered through June and July as markets prepare for a long-awaited US rate cut. Having marked a 2024 low below US$0.5880 at the end of July, the NZD climbed steadily to US$0.6293 as fears surrounding a US recession abated.

Markets largely ignored domestic data and signals the New Zealand economy could be destined for a deep and long recession and instead directed their energies to US rate cut bets. Policymakers’ focus has shifted away from inflation fears toward protecting employment growth, signalling the time has come to loosen policy conditions. The US dollar has softened as a consequence.

Looking ahead, the Federal Reserve (Fed) policy meeting could shape near term direction. Despite the US non-farm payrolls showing further deterioration in labour market conditions, the market still expects a September interest rate cut.

Markets expect trading ranges to narrow. Beyond the US CPI inflation numbers, there is also the US presidential debate between candidates Harris and Trump. With vastly different policies and agendas at play, analysts are expecting volatility across financial markets as the debate unfolds.

Expected ranges:

  • NZDUSD 0.5850–0.6300
  • NZDGBP 0.4550–0.4750
  • NZDAUD 0.8950–0.9250
  • NZDEUR 0.5350–0.5600

USD United States dollar

With the US Federal Reserve likely to cut interest rates for the first time in five years, markets remain volatile as they await key inflation data and Fed decisions this September.

In September, we near a crucial period for the US Federal Reserve (Fed) as it looks likely set to start cutting interest rates for the first time in five years.

Last month was incredibly volatile for the stock market amid growing concern for the health of the US economy and whether it could be headed for a recession. Those concerns abated after the US retail sales and Service sector PMI delivered better-than-expected numbers. However, the Fed is all but guaranteed it’ll start lowering the cost of borrowing at its September 18 policy decision.

In a keynote speech at the annual Jackson Hole Economic Symposium in Wyoming, Fed Chairman Jerome Powell, stated “the time has come” to consider cut interest rate cutss but he cautioned of “downside risks” to the US labour market. Those concerns still linger after a slight underperformance in the most recent US jobs data.

The monthly US Non-Farm Payrolls figure showed an extra 142k people were added to the workforce in June, a little less than forecast.

With the Fed to start the easing cycle, speculation remains whether it will be a 50bp or 25bp cut to rates. The US CPI inflation data is expected to drop from 2.9% to 2.6% year-on-year. The results will likely determine the amount of any cut.

Expected range:

  • DXY 99.40–104.90

JPY Japanese yen

The yen surged in August, driven by hawkish BoJ signals and a weakening US labour market, prompting unwinding of carry trades and market volatility. Future moves hinge on rate changes.

In August, the yen advanced against the US dollar. The North American closing rates shifted from 150.89 to 143.74, dropping to 141.68 on August 5, the lowest level since January 2. From August 1 to September 6, the yen rose by over 4.90%, making it the best performer among G-10 peers. This surge was attributed to hawkish remarks from Bank of Japan Governor Kazuo Ueda, indicating potential interest rate hikes if the central bank’s economic forecasts proved accurate. Speculations about substantial Fed cuts due to a softening US labour market also contributed to the yen’s rally.

The disappointing US labour market report on Friday reinforced the currency’s bullish momentum, which was bolstered by the losses in the yield of the US 10-year T-note.

The surge in the yen also correlated with a significant unwinding of dollar-yen carry trades, which led to the liquidation of short yen positions. According to some research papers, investors are no longer attracted by the yen’s carry dynamics. Instead, they choose to express carry positions elsewhere, with the Swiss franc being a popular choice.

The sudden discontinuation of the yen carry trade, which involves selling Japan’s currency to invest in higher-yielding assets, caused the Nikkei 225 Stock Average to decrease significantly and fuelled a surge in the VIX stock market volatility index.

Although the yen has been trading in the mid-140s range against the dollar, showing signs of stability, high volatility persists. Looking ahead, potential rate cuts by the Fed and the possibility of Bank of Japan (BoJ) tightening could disrupt the markets again. It’s also important to closely monitor the risks related to carrying trade unwinds and upcoming economic data as these factors could significantly impact market dynamics and the yen’s performance.

Expected ranges:

  • USDJPY 136.00–150.00
  • EURJPY 152.00–166.00

CAD Canadian dollar

The Canadian dollar rose in August, helped by a weaker US dollar and hopes for US rate cuts, despite falling oil prices and uncertain domestic conditions.

Much likes its commodity-led cousins, the Canadian dollar advanced through August, emboldened by a softer US dollar and improved risk appetite. The CAD enjoyed an extended upswing against a weaker US dollar. Improved risk sentiment and the impending US Federal Reserve (Fed) interest rate decision, helped to push the CAD above US$0.7430.

Although there’s been no formal confirmations, markets are pricing for a 50-bpFed rate cut. Experts have optimistically started pricing in over 100 points of cuts by the end of 2024, hoping it will help to offset Bank of Canada’s rate adjustments and a sharp decline in global oil prices.

Crude oil has fallen almost 12% over the last 4 weeks, with losses accelerating through early September. The correction in one of Canada’s key exports saw the currency drift off the 7-month high and settle near US$0.7350 following US non-farm payrolls for August.
The Fed policy meeting is the focal point as it will likely be key in shaping near term direction. Analysts remain divided on whether policymakers should reduce rates by 25 or 50 basis points.

Beyond US CPI inflation data, the upcoming US Presidential debate between candidates Harris and Trump could have far-ranging impacts to currencies. With vastly different policies and agendas, we expect volatility will remain elevated.

  • CADUSD: 0.7180–0.75
  • CADGBP 0.5600–0.5800
  • CADNZD 1.1950–1.2250
  • CADEUR 0.6550–0.6750

SGD Singapore dollar

In August, the SGD hit an 18-month high against the US dollar, amid lower inflation and better-than-expected economic growth. Future trends are dependent on US interest rates and local manufacturing performance.

In August, the Singapore dollar made further gains against the US dollar, rallying to an 18-month high against a weaker greenback as investors look to widely expected cuts in interest rates by the US Federal Reserve (Fed) in the months ahead.

Markets are pricing in a September interest rate cut from the Fed, which would be the first since the emergency easing in the early days of COVID.

On August 23, The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) published Singapore’s July core inflation of 2.5% year-on-year. This was driven by lower inflation across all the major core Consumer Price Index (CPI) categories. July’s figure is a dip from June’s 2.9% and the lowest since February 2022.

Singapore’s non-oil domestic exports (NODX) rose by 15.7% in July, reversing the revised 8.8% contraction in June. This level of expansion hasn’t been seen since January, when NODX rose by 16.7%.

Looking ahead, Singapore has upgraded its full-year GDP growth forecast to a range of 2-3%, up from a previously expected range of 1-3%. This forecast change comes after the economy performed better than expected, with a 2.9% expansion in the second quarter (Q2). Analysts say the revised outlook depends on the manufacturing sector and external demand and warn that the Singapore dollar may wane in the coming months, if the US economy experiences a soft landing. The MAS is expected to keep its tight exchange rate policy for now, although softer-than-expected numbers could raise market expectations for the MAS to move towards easing.

Expected range:

  • USDSGD 1.2850–1.3300

HKD Hong Kong dollar

In August, the HKD traded in a narrow range. Hong Kong’s economy grew modestly in Q2 with steady inflation. Future trends for the HKD will depend on US CPI and Chinese economic data.

Hong Kong’s economy expanded 3.3% in Q2 2024, compared to Q2 last year. The economy expanded by 2.7% in Q1 2024, a sharp slowdown from the growth of the previous quarter.

The Hong Kong dollar traded in a tight range, averaging 7.797 in August, compared with 7.810 in July.

On August 20, the Census and Statistics Department (C&SD) released) the Consumer Price Index (CPI) figures for July 2024. According to the Composite CPI, overall consumer prices rose by 2.5% in July 2024 a 1.5% increase from June 2024. The larger increase in July 2024 was likely due to the end of the rates concession in June 2024, increases in inbound and outbound transport fares as well as the smaller decreases in electricity charges.

Towards the end of August, global markets saw the USD stronger and equity markets down after the Jackson Hole Symposium inspired a rally. Part of this was likely due to geopolitical concerns, with Brent oil prices rising by 4%. This comes as Libya’s eastern government said it will shut down all crude oil output and exports amidst a dispute over who will lead the central bank. Libya produces 1.2mn bbls per day of oil, which is sizeable.

Looking ahead, overall inflation should stay mild in the near term. Markets will focus on US consumer data and China’s industrial profit numbers. Domestic costs may face some moderate upward pressures as the Hong Kong economy continues to grow.

Expected range:

  • USDHKD 7.7880–7.8250

Interest rate cuts on horizon Read the article.


IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.

Written by

Jake Trask

OFXpert

As a Senior Corporate Client Manager, Jake and his team manage a diverse portfolio of 250 businesses to meet their varied foreign exchange needs. He enjoys untangling the complexities of foreign exchange dynamics, constantly striving to provide clients with the most informed insights and strategies to navigate these fluctuations successfully.

Written by

Julia Gao

OFXpert

Fluent in Mandarin and English, Julia brings a profound understanding of market intricacies, client needs, and banking sector dynamics to her role. Her expertise is focused on the primary currencies in the Asia Pacific region, where she provides market insights to her team and a wider audience. She contributes to OFX’s Currency Outlook each month, focusing on currencies such as the Singapore dollar, Hong Kong dollar, and Japanese yen.

Written by

Matt Richardson

OFXpert

As a Senior Corporate Client Manager, Matt provides expertise in currency risk management to his clients, drawing from his 14 years of experience in foreign exchange. Matt has clients who he has been working with for over a decade, a testament to his knowledge and dedication in the field. Matt is also a regular contributor on Ausbiz, offering clear and precise updates on currency market trends, showcasing his ability to interpret complex financial data into actionable insights.