UBS projects continued US dollar strength through 2026, driven by high productivity and yield differentials. The report remains bearish on JPY and AUD while highlighting potential for CHF as a carry funding currency.
Key Takeaways
- 1.Maintain bullish outlook on USD due to strong US productivity, AI-led investment, and US yield curve re-pricing.
- 2.Continue to fade JPY intervention; raise USDJPY targets to 165.
- 3.Bearish outlook on AUD due to domestic economic weakness and cooling commodity/rate cycle.
Table of Contents
- Key trading themes
- Q3 FX targets and expected ranges
- UBS FX forecasts
- Key G10 Policy Rates UBS Forecasts
- G10 calendar
- USD performance has lagged the energy move
- Vol: longer dated implied volatility remains pinned down
- USD: still supported by AI and upper income strength
- USD: strong markets and net inflows suggest resilience
- USD: rate differentials and positioning are key for now
- USD: still not overvalued
- USD: supported by the US productivity advantage
- USD: ex US investors remain awash in US assets
- EUR: fewer reasons to hike mean diminished rates support
- EUR: propped up by a healthy BoP position
- EUR: European investor hedging activity seems mixed
- JPY: intervention can only slow the trend, not reverse it
- JPY: positioning is short, but not aggressively so
- JPY: fundamentals are less supportive than on paper
- JPY: JGB market still trying to find a new balance
- JPY: asset flows have not been supportive recently
- GBP: ongoing resilience despite political developments
- GBP: less hawkish BoE pricing not necessarily a negative
- GBP: supported by positive general risk sentiment
- CHF: SNB policy and FX stance reinforce carry funder appeal
- CHF: positioning is not an impediment to carry dynamics
- CHF: structural positives still prevent extensive franc weakness
- CAD: weak domestic data undermine rate support prospects
- CAD: USMCA review and Alberta vote are idiosyncratic risks
- CAD: “Buy Canada” is helpful on paper, but hardly new
- CAD: short positioning has risen, but is not extreme
- AUD: near-term, AUD weakness may stabilise...
- AUD: ...however, fundamentals are starting to weaken
- AUD: hedging support is not clear, but valuations are fair
- NZD: RBNZ tightening prospects cap AUDNZD upside risk
- NZD: Poor medium-term sentiment to weigh on NZD vs USD
- SEK: new vulnerabilities cloud the positive structural view
- SEK: equity flows less supportive now
- SEK: Swedish manufacturing outperformance a positive
- NOK: oil in focus, but rates and risk sentiment are key
- NOK: neutral fundamentals
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Authors
Shahab JalinoosAlvise MarinoBenjamin JarrettMeena Bassily
Securities
USDEURUSDUSDJPY
Themes
US ExceptionalismDe-dollarizationCarry Trade
Regions
GlobalEuropeUnited StatesJapanUnited Kingdom