Australian exchange foreign exchange trading reminds: US inflation slowed in June, the US index hit a new low in more than a year, and Nomura raised its euro forecast

On July 13, Beijing time, the Asian market morning, the US dollar index continued its overnight decline, once refreshed more than a year of new lows to 100.44, and is currently trading near 100.50. The US dollar index fell 1.05% on Wednesday to close at 100.59. Earlier data showed that US consumer price inflation slowed in June, suggesting that the Federal Reserve may only need to raise interest rates again this year. Jordan Rochester, senior foreign exchange strategist at Nomura G10, said he is improving confidence in the long trade of the euro against the dollar, with the goal of the euro rising to 1.14 by the end of September.

In early Asian trading on July 13, Beijing time, the US dollar index continued its overnight decline, once setting a new low of more than a year to 100.44, and is currently trading near 100.50. The US dollar index fell 1.05% on Wednesday to close at 100.59, the largest one-day percentage decline since the end of January.The previous data showed that U.S. consumer price inflation slowed in June, suggesting that the Federal Reserve may only need to raise interest rates once more this year.

The data showed that the core consumer price index (CPI) in the United States rose only 0.2% in June, the smallest month-on-month increase since August 2021, and expected to rise 0.3%. Core CPI rose 4.8% year-on-year, the smallest increase in more than two years, and the market expected a 5% increase.

Simon Harvey, head of FX analysis at Monex Europe, wrote in an emailed comment: "The weaker-than-expected US core inflation data for June reinforces our base case and the market's initial reading of the Fed's last rate decision that there will only be one more rate hike this cycle."

He added that the inflation data "caused the dollar to extend the post-payrolls decline, with the dollar's decline remaining most pronounced against severely undervalued and yield-sensitive currencies such as the Norwegian krona, Swedish krona and Japanese yen".

The U.S. interest rate futures market still shows that traders overwhelmingly expect the Federal Reserve to raise its policy rate range by 25 basis points to 5.25% -5.5% at its July 25-26 meeting, but now expect the likelihood of another rate hike before the end of the year to drop to about 25%, compared to about 35% before the report.。

On Wednesday, the euro touched its highest level against the dollar since March last year at 1.1140, and finally closed up 1.09% at 1.1128.

Jordan Rochester, senior FX strategist at Nomura G10, said in a research note that he is boosting confidence in the long trade of EUR/USD, targeting the euro to rise to 1.14 by the end of September, compared with a previous target of 1.12.He said the bad news on eurozone growth had been priced in, while in the US "the pressures of slowing inflation... are becoming clearer, with core CPI below market expectations".

The pound continued to rise against the dollar on Wednesday, hitting a 15-month high of 1.30 before closing up 0.43% at 1.2986.

Expectations that the Bank of England will raise interest rates further to curb inflation have fueled the pound's gains, with UK inflation the highest of any major economy.

On Wednesday, the Bank of Canada announced a new policy, raising interest rates by 25 basis points to 5% as scheduled, borrowing costs hit a 22-year high, and raising the inflation outlook. The dollar plunged nearly 40 points against the Canadian dollar and finally closed down 0.33% at 1.3185.

The National Bank of Canada forecasts that the Canadian dollar will decline in the second half of the year, and the United States and Canada will see 1.38 by the end of the year.The National Bank of Canada (NBC) said the Canadian dollar, which performed middling among the G10's major currencies in the first half of the year, will struggle in the coming months as the Bank of Canada will be keen to maintain a cautious interest rate policy. The expected global economic slowdown will weigh on commodity prices, possibly weakening Canada's terms of trade, which could weaken the Canadian dollar. The bank expects the Canadian dollar to fall, with the dollar moving towards 1.38 against the Canadian dollar before the end of the year, and further falling to 1.40 before the end of Quarter 1 next year, and is expected to recover to 1.36 before the end of the second quarter;

Thursday's key data and events

Institutional Perspectives Summary

Mizuho Securities: The United States and Japan may fall towards 138.50.

Mizuho Securities said the dollar against the yen may fall to the 138.50 level, on market expectations that the Bank of Japan may adjust policy at its July meeting, triggering yen short position squaring

2. Nomura recommends shorting the dollar against the yen before the Bank of Japan's July meeting;

Expectations that the Bank of Japan will adjust its "yield curve control" policy will boost the yen, Nomura foreign exchange strategists said, recommending shorting the dollar against the yen ahead of its interest rate meeting at the end of the month. Craig Chan, Jordan Rochester and Yusuke Miyairi wrote in a report on Wednesday that they recommended shorting the dollar against the yen with a target of 135.00 and a stop loss of 140.00; the economists also said: "We do not believe that the BoJ is fully convinced that inflationary pressures in Japan are becoming persistent, so we expect yield curve control to be revised in July, but no interest rate hikes (or policy normalisation) ". Therefore, the BoJ's policy meeting on July 27-28 is expected to be positive for the yen;

3. Capital Economics: The slowdown in the economy and core inflation is expected to persuade the Bank of Canada to stay put for the rest of the year.

Stephen Brown, economist at Capital Economics, expects the Bank of Canada to keep interest rates at 5 per cent for the rest of 2023. "Despite the hawkish tendencies of the Bank of Canada and persistent inflation concerns that'progress towards the 2 per cent target may stall ', we expect further deceleration in GDP growth and signs of easing core inflation to persuade the central bank to keep policy on hold for the rest of the year," Brown said.

4. Credit Suisse: Continues to set the target for the pound against the dollar at 1.3000;

According to Credit Suisse, the pound will continue to benefit from favourable yield differentials and we disagree with the view that the pound should be sold due to negative real interest rates in the UK or the possibility that the economy may eventually suffer a severe recession. We continue to target the pound against the dollar at 1.3000 and the euro against the pound at 0.8450 in the near future;

5. Royal Bank of Canada: The recent rebound of the yen may be due to the large-scale positioning squaring of the yen short position;

RBC said the yen's recent rally could be due to a massive positioning squaring of short yen positions, which seems like a more plausible explanation than a possible policy adjustment by the Bank of Japan at its meeting this month. Adam Cole, the bank's chief FX strategist, said July "is already the most bullish month for analysts on the timing of adjusting the yield curve control (YCC) policy" and if there is a major shift in this expectation, then JGB yields will trade around the current ceiling under the YCC program. The possibility that the Bank of Japan will continue to widen the YCC range is not ruled out, but if that happens, the dollar will not experience a knee-jerk decline against the yen either. The risk lies in the dovish reaction to JGBs and the market's rapid shift to the view that a Fed rate hike will benefit the pair.