HSBC-Currency Outlook：House of cards

www.research.hsbc.comDisclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it.Play video with Paul Mackel, Daragh Maher and Jingyang ChenCurrenciesGlobalJune 2024By: Global FX ResearchCurrency OutlookHouse of cardsThe market was voting against the USD recently but we still see it winning the race. Elections and market volatility suggest what could lie aheadIn this edition, we update our forecasts and discuss the impact of the US and UK elections on the USD and GBP respectively, as well as outline our thinking on the JPY, RMB and AUD Currencies ● Global June 2024 1 Currencies ● Global June 2024 Overview: House of cards (pg 2) The market was voting against the USD recently but we still see it winning the race. Elections and market volatility suggest what could lie ahead. Independence slay at the Fed (pg 7) A second presidential term for Donald Trump could see the question of Fed independence resurface in the FX market. The ability of a US president to alter the Fed’s composition swiftly and materially is limited by law and likely also by political realities. President Trump’s criticism of Fed policy and a stronger USD did not move the currency market materially during his previous term. GBP: Labouring the point (pg 15) Some believe the UK election will be GBP positive but we are more sceptical; the BoE’s monetary policy outlook matters more for GBP. GBP will face a leadership challenge in the coming months. JPY: Snail’s pace (pg 19) There have been some positive developments for the JPY recently against some currencies, except notably, the USD. The Fed’s tipping point is delayed and Japan’s BoP rebalancing is happening very slowly. RMB: Glacial pace (pg 24) We now look for a modest and gradual RMB depreciation to 7.30/USD by the end of 2024. A delayed and shallow rate cut cycle by the Fed suggests the FX demand-supply imbalance could remain challenging. By allowing the fixing to rise in May and not really tightening CNH liquidity, the PBoC could be slightly dialling back its defensiveness. AUD: Beyond beta? (pg 29) We discuss how the main themes – China, commodities, rate differential, and carry – feed into our AUD outlook. AUD-specific drivers may not turn sustainably supportive yet, although these are reflected in the sizable short positions. Until they improve, we think AUD-USD will remain mostly a “beta play” to moves in the broad USD and risk appetite. FX Market: May 2024 (pg 35) Summary We acknowledge the assistance of Thomas Rose, HSBC Bank plc, in the production of this report. Currencies ● Global June 2024 2 USD gets our vote We are nearing the halfway point of the year and our broad views remain largely unchanged apart from some forecast changes (see page 6 for more detail). Since early September last year, we have believed in the strong USD and we see this continuing in the months ahead. The USD continues