FX OVERVIEW
FX was shaped by renewed risk aversion: China’s manufacturing and services PMIs contracted, while escalating Strait of Hormuz attacks pushed oil to six-month highs. The BOJ’s faster ETF sales signaled further policy normalization, but Japan’s use of the proceeds to support fiscal plans complicates the yen outlook.
MAJOR PAIRS
USDJPY — The BOJ’s plan to increase annual ETF sales to ¥860 billion—more than double the previous pace—reinforced its move away from unconventional policy and supported the yen. The signal is tempered by concerns that ETF-sale gains could help fund government priorities, raising questions about central bank independence; no key technical level was cited.
AUDUSD — China’s October manufacturing PMI fell to 49.3 and the non-manufacturing PMI to 49.7, both below the 50 expansion threshold. The weak data adds pressure to the China-sensitive Australian dollar and points to a downward bias for AUDUSD.
USDCNH — The contraction in both Chinese manufacturing and non-manufacturing activity, despite existing stimulus measures, underscored downside risks to growth and the renminbi. The news supports an upward bias in USDCNH.
EURUSD — Speculation about a possible early departure by ECB President Christine Lagarde and debate over the bank’s future policy direction added uncertainty to the euro outlook. Citi’s analysis anticipates a more dovish communication shift, leaving the bias tilted lower for EURUSD, though no immediate ECB decision was reported.
CENTRAL BANK WATCH
- BOJ: Accelerating ETF sales to ¥860 billion annually marks a faster unwind of unconventional policy. The sales are also expected to generate about ¥800 billion in annual capital gains for the government, creating a potential tension between balance-sheet normalization and fiscal support.
- ECB: Citi highlighted uncertainty around possible leadership changes and a potential shift toward more dovish communication focused on underlying inflation and monetary transmission. This was an analytical outlook, not a new ECB decision or formal guidance.
MACRO DRIVERS
- China growth risk: October PMIs fell below 50 in both manufacturing and non-manufacturing, raising doubts about the durability of the recovery and weighing on China-sensitive currencies.
- Energy and geopolitics: More than 35 reported shipping attacks in the Strait of Hormuz during October helped lift oil to six-month highs. The risk of further disruption adds to inflation concerns and supports defensive positioning.
- Japan policy mix: Faster BOJ ETF sales point to normalization, while the expected fiscal use of sale proceeds raises questions about the boundary between monetary and fiscal policy.
- Trade-policy uncertainty: Unclear U.S. tariff and clean-energy rules are delaying investment and procurement decisions, while potential tariffs on Mexican railcars add to North American supply-chain risk.
POSITIONING IDEAS
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Bullish
- USDCNH — China’s contraction across manufacturing and services supports a long bias.
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Bearish
- AUDUSD — Weak Chinese activity is a direct headwind for the China-sensitive Australian dollar.