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Drivers for the Month Ahead Monthly FX Update September 29, 2024 View Online October 2024 With the Federal Reserve's 50 bp rate cut, seven of the G10 central banks have begun an easing cycle that will extend, broaden, and may accelerate going forward. Australia and Norway will likely join the party next year, while some, like Canada and Sweden may increase the pace of its cuts in Q4. Beijing jumped into the mix, with rate cuts, reserve requirement reductions, and a flood of liquidity aimed at supporting the housing and property markets, and industry consolidation. Japan is the notable exception. It is in the process of normalizing monetary policy. It has begun "quantitative tightening" by not reinvesting the maturing proceeds from its balance sheet as it gradually raises rates. The Bank of Japan has been explicit about its intention to lift rates further, provided the economy and prices evolve as it expects, and the capital market are broadly stable. The dramatic unwinding of carry-trade strategies that contributed to the volatility in July and early August was not an important driver in September. In the CME futures, non-commercial accounts (no underlying business need) covered more 80% of the gross short yen position that it had in early July. It has gone from a 17-year high to a three-year low. The non-commercial gross long yen position has jumped three-fold from early July. The net long position of more than 56k contracts (~$4.9 bln notional value) is the largest since 2016. Click here for further analysis Economic Calendar October 1: China Holiday through October 7 October 1: EMU Preliminary CPI October 1: US JOLTS, Vice President Debate October 1: Mexico Holiday, Sheinbaum Inauguration October 3: Australia Trade October 4: US Employment October 7: Japan Labor Earnings and Household Spending October 8: Reserve Bank of New Zealand Meeting October 9: Mexico CPI October 10: US CPI October 11: UK August GDP October 11: US PPI October 11: Canada Employment October 13: China CPI and PPI October 14: Japan Health Day/Sports Holiday October 14: Canada Thanksgiving Holiday October 15: UK Employment October 15: Canada CPI October 16: UK CPI October 17: Japan National September CPI October 17: Australia Employment October 17: European Central Bank October 17: US Retail Sales and Industrial Production October 18: China Q3 GDP October 18: UK Retail Sales October 21: China Loan Prime Rates October 23: Bank of Canada October 24: Preliminary PMI October 24: Japan Tokyo October CPI October 27: UK Daylight Savings Ends October 30: Australia September and Q3 CPI October 30: US Q3 GDP October 30: Mexico Q3 GDP October 31: Bank of Japan October 31: China PMI October 31: UK Autumn Budget October 31: EMU Preliminary CPI November 1: China Caixin Manufacturing PMI November 1: US Employment The Bannockburn World Currency Index, a GDP-weighted basket of the currencies of the 12 largest economies, which are divided equally between high-income and emerging market economies, rose by 0.75% in September, its best month of the year. It reached its best level in five months and is testing the 200-day moving average for the first time since January. It carved out a low in June and July, which helped boost our confidence the dollar's cycle was turning. That judgement remains valid, and even if there will be corrections along the way, we expect the dollar to continue to trend lower. Even though the BWCI gain was modest, there were large moves among the components. Leaving aside he numeraire, the dollar, only three currencies moved less than 1% in September through the last full week of the month and moved by much less than 1%. The Canadian dollar fell 0.2% and was the only G10 currency to decline through the last full week of September. Ironically, one of the highest and one of least volatile emerging market currencies, the Mexican peso and the Indian rupee, respectively, both appreciated by 0.2%. The Brazilian real was the best performer, rising 3.2%, encouraged by the central bank signaling, delivering a rate hike, and suggesting more were likely. The yen's 2.8% gain put it in second place, though almost 2/3 of the gains came on the last day of the period, following the unexpected selection of the Ishida as the new LDP leader, and hence prime minister. The US 10-year yield also fell on September 27 by nearly five basis points, the most in two-and-a-half weeks. Two-thirds of the Australian dollar's 2.1% advance came after China's large stimulative measures were announced. The Russian ruble was the worst performer, in the BWCI, losing 3.1%. Bannockburn Global Forex is a capital markets trading firm specializing in foreign currency advisory, hedge analytics, and transaction processing for closely held enterprises. We create distinctive value by combining the personal attention and flexibility of a boutique, with scalable efficiencies and expert counsel. www.BannockburnGlobal.com
With the Federal Reserve's 50 bp rate cut, seven of the G10 central banks have begun an easing cycle that will extend, broaden, and may accelerate going forward. Australia and Norway will likely join the party next year, while some, like Canada and Sweden may increase the pace of its cuts in Q4. Beijing jumped into the mix, with rate cuts, reserve requirement reductions, and a flood of liquidity aimed at supporting the housing and property markets, and industry consolidation. Japan is the notable exception. It is in the process of normalizing monetary policy. It has begun "quantitative tightening" by not reinvesting the maturing proceeds from its balance sheet as it gradually raises rates. The Bank of Japan has been explicit about its intention to lift rates further, provided the economy and prices evolve as it expects, and the capital market are broadly stable. The dramatic unwinding of carry-trade strategies that contributed to the volatility in July and early August was not an important driver in September. In the CME futures, non-commercial accounts (no underlying business need) covered more 80% of the gross short yen position that it had in early July. It has gone from a 17-year high to a three-year low. The non-commercial gross long yen position has jumped three-fold from early July. The net long position of more than 56k contracts (~$4.9 bln notional value) is the largest since 2016.