Pick Your Battles

Crédit Agricole maintains a bearish stance on EUR/USD as geopolitical risks and potential US tariffs on EU exports outweigh hawkish ECB pricing. Meanwhile, focus shifts to Australia's budget as a key determinant of the RBA's restrictive rate cycle.

Key Takeaways

• 1.Optimism surrounding a resolution to the US-Iran conflict and the reopening of the Strait of Hormuz is weighing on the USD and propping up risk sentiment.
• 2.Hawkish G10 central bank pricing looks vulnerable as energy prices correct lower, particularly for the EUR where money markets have priced in significant tightening.
• 3.The upcoming Australian Federal Budget is critical for the RBA's rate outlook; significant 'budget repair' could reduce the need for further rate hikes.

Table of Contents

• EUR & hawkish ECB pricing risks
• Five-day performance (vs USD)
• Latest Publications
• G10 FX Forecasts
• FX and gold outlook
• G10 FX Portfolio
• FX Focus
• Runaway government spending
• The ALP to rein in spending in the budget?
• Help for the RBA at last?
• Conclusions
• Week ahead: key themes & trades
• FX Positioning Update
• FAST FX Fair Value Model Update
• FX Fair Value Model Update
• FX Risk Index
• Key releases in the week ahead
• Exchange rate forecasts
• Economic forecasts
• Interest rate forecasts – developed countries

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