Nomura medium-term FX outlook: USD downside, favoring EUR, JPY, AUD, NZD, CNH, TWD, and SGD

Overview

Nomura has published a recurring report focused on the medium-term FX outlook, covering major G10 and Asia ex-Japan currencies. The report argues that as the impact of Middle East uncertainty fades, market focus will shift back to central-bank actions and rate-hike pricing. The base case is that the Fed does not hike in 2026, which will put pressure on the USD in H2 2026; at the same time, currencies with hiking cycles, improving capital flows, or policy support are more likely to outperform.

Core views

The core view is to be bearish USD and favor selected non-USD currencies. Within G10, EUR is supported by rate convergence, an ECB hawkish bias, and eurozone capital inflows; AUD and NZD are supported by capital flows, terms of trade, and a potential RBNZ hiking cycle; JPY still faces upside risk in USD/JPY in the short term, but may be nearing its peak in the medium term. Relatively unfavorable currencies include GBP, CAD, and SEK, due respectively to a dovish BoE path, difficulty for BoC hikes to materialize, and weak Swedish inflation and growth. In Asia ex-Japan, CNH, TWD, and SGD are favored to outperform, while KRW, IDR, and INR are seen as more likely to lag.

Analysis framework

The report is primarily based on multi-month FX forecasts, combining central-bank policy paths, market rate pricing, relative yields, balance of payments, portfolio capital flows, current accounts, positioning, policy risk, and fiscal risk to assess currency strength. The G10 section emphasizes central-bank reaction functions and interest-rate differentials, while the Asia ex-Japan section places more emphasis on trade settlement, AI-related capex, foreign equity and bond flows, central-bank FX policy, and local policy credibility.

Methodology notes

• Macro FX frameworkCentral bank policy and rate pricing

  Compare the actual central-bank path with the magnitude of hikes or cuts already priced by the market.

  If market pricing is excessively hawkish but the central bank ultimately does not hike, the related currency's rate support may weaken; based on this, the report judges that USD, CAD, GBP, and SEK face pressure, while some currencies such as EUR, NZD, and NOK still retain policy support.

• Balance of payments frameworkCapital flows and current account

  Observe the impact of portfolio investment flows, trade settlement, current-account surpluses, and FX reserve behavior on exchange rates.

  The report believes that improving eurozone capital flows, Swiss and Swedish current-account surpluses, CNH corporate FX conversion, TWD current-account and equity inflows, and SGD's policy appreciation path are all important support factors.

• Risk and positioning frameworkInvestor positioning and policy risk

  Assess nonlinear FX fluctuations by combining speculative and real-money positioning, central-bank intervention capacity, and fiscal and regulatory risks.

  The report notes that CAD short covering, crowded JPY shorts and Japanese MoF intervention, IDR policy and fiscal risks, and KRW overseas asset allocation and AI-cycle changes could all alter FX performance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• USD / DXY

  Medium-term bearish

  Strengths

  Recently supported by upward revisions to Fed hike pricing and US equity inflows.

  Weaknesses

  The report's base case assumes the Fed does not hike in 2026, and US growth and inflation momentum may weaken in H2 2026, while the de-dollarization theme may return.

  Comparison

  DXY is expected to fall to 98.00 by end-2026 and 92.70 by end-2027.

  Risks

  If the Fed is actually more hawkish, US data remains strong, or safe-haven demand rebounds, USD could be stronger than forecast.

• EUR

  Bullish

  Strengths

  The ECB reaction function is hawkish, terminal-rate expectations are above market pricing, eurozone portfolio inflows are improving, and the current-account surplus remains in place.

  Weaknesses

  If the Fed does not turn as dovish as expected or eurozone growth weakens, EUR upside will be limited.

  Comparison

  EUR/USD is expected to rise to 1.18 by end-2026 and move above 1.20 in 2027.

  Risks

  USD strength returns, or European growth or political risks deteriorate.

• GBP

  Relatively weak

  Strengths

  GBP/USD is still forecast to rise modestly against a backdrop of broad USD weakness.

  Weaknesses

  The BoE path is among the most dovish in G10, the labor market is weakening, inflation pressure is limited, and fiscal risk premium may persist.

  Comparison

  EUR/GBP is expected to rise to 0.92 by end-2027, indicating GBP weakness relative to EUR.

  Risks

  If UK growth and fiscal credibility improve, GBP may perform better than expected.

• CHF

  Moderately strong

  Strengths

  The current-account surplus is large and stable, financial-account deposits continue to flow in, and low and stable inflation allows nominal appreciation.

  Weaknesses

  Larger rate differentials created by other central-bank hikes may be unfavorable for CHF, and carry-trade momentum is also a risk.

  Comparison

  EUR/CHF is expected to fall to 0.90 in the latter part of 2026, while USD/CHF falls to 0.76 due to USD factors.

  Risks

  Strong risk appetite, widening rate differentials, or large-scale SNB intervention again.

• CAD

  Weak in the short term, moderately improving in the medium term

  Strengths

  USD/CAD is expected to decline slightly to 1.40 by end-2026.

  Weaknesses

  Canadian inflation is softer, the labor market is weak, the hurdle for further BoC hikes is high, and USMCA renegotiation is a headwind.

  Comparison

  The report expects USD/CAD to retain short-term upside but fall back to 1.40 by end-2026.

  Risks

  Market CAD shorts have expanded, so any positive catalyst could trigger short covering.

• SEK

  Relatively weak

  Strengths

  The current-account surplus is large and valuation is cheap, which may limit excessive depreciation.

  Weaknesses

  Inflation is below target and domestic growth is weak, making it difficult for the Riksbank to hike; the current-account surplus continues to be invested in overseas financial assets.

  Comparison

  EUR/SEK is expected to be 11.20 by end-2026, and NOK/SEK around 0.97.

  Risks

  If inflation or growth reaccelerates, Riksbank policy expectations may improve.

• NOK

  Mixed direction

  Strengths

  Norges Bank has hinted at hikes in coming months, and rate differentials may still favor NOK.

  Weaknesses

  Falling oil prices weaken NOK; government-related FX recycling flows may shift from selling FX to buying FX, thereby weighing on NOK.

  Comparison

  EUR/NOK is expected to rise to 11.50 by end-2026, with NOK/SEK around 0.97.

  Risks

  A sharp rebound in oil prices or a more hawkish central-bank stance could support NOK.

• JPY

  Improving in the medium term

  Strengths

  USD weakness, the Japanese MoF still has intervention capacity, JPY short positioning is crowded, and the risk of a more hawkish BoJ in the future is rising.

  Weaknesses

  The BoJ's recent 25bp hike failed to limit JPY depreciation, and it is difficult to be more hawkish than the market in the short term.

  Comparison

  USD/JPY is expected to be 154.0 by end-2026 and 145.0 by end-2027.

  Risks

  If US-Japan rate differentials continue to widen or the BoJ is constrained, JPY may remain under pressure.

• AUD

  Bullish

  Strengths

  Terms of trade are improving, portfolio flows—especially into AUD bonds—are strong, and Australian government debt is low.

  Weaknesses

  AUD remains highly correlated with global risk sentiment, equities, credit spreads, and commodities.

  Comparison

  AUD/USD is expected to rise to 0.73 by end-2026 and 0.75 by end-2027.

  Risks

  Deteriorating global risk appetite or weaker commodity prices would weigh on AUD.

• NZD

  Bullish

  Strengths

  RBNZ is close to starting a hiking cycle, investor positioning is short, and overseas holdings of NZGBs are rebounding from low levels.

  Weaknesses

  New Zealand's economy is affected by imported fuel and terms-of-trade shocks, and the market hiking path is slightly faster than the report forecasts.

  Comparison

  NZD/USD is expected to rise to 0.60 by end-2026, while AUD/NZD is expected to fall to 1.20.

  Risks

  Another rise in fuel prices, a weaker-than-expected growth rebound, or an RBNZ that is less hawkish than expected.

• CNH

  Bullish

  Strengths

  Chinese corporates' net FX conversion is strong, exports and trade surpluses are resilient, US-China relations are stable, and RMB internationalization and low valuation provide support.

  Weaknesses

  The pace of RMB appreciation remains constrained by the daily fixing and policy settings.

  Comparison

  USD/CNH is expected to be 6.50 by end-2026 and 6.30 by end-2027.

  Risks

  Weaker exports, deterioration in US-China relations, or policy unwillingness to allow further appreciation.

• TWD

  Bullish

  Strengths

  Global AI demand and capex are strong, TSMC's high capex and local procurement plans support Taiwan's semiconductor supply chain, and the current-account surplus plus foreign equity inflows are favorable.

  Weaknesses

  Insurer and exporter FX hedging behavior may depend on the USD environment and swap points.

  Comparison

  USD/TWD is expected to be 30.8 by end-2026 and 30.0 by end-2027.

  Risks

  An AI-cycle reversal, foreign outflows, or changes in central-bank intervention.

• KRW

  Relatively weak

  Strengths

  A temporary US-Iran agreement, NPS asset-allocation adjustments, and corporate repatriation may provide phased support.

  Weaknesses

  Korean retail investors may resume buying US assets, NPS overseas allocation may continue, and global fund single-stock limits may trigger foreign equity outflows.

  Comparison

  The report lists KRW as one of the relative laggards in Asia ex-Japan, with USD/KRW expected at 1495 by end-2026.

  Risks

  If the USD weakens, exporter repatriation rises, and AI exuberance cools without turning into risk aversion, KRW may perform better than expected.

• SGD

  Bullish

  Strengths

  Singapore's economic momentum is strong, the output gap is positive, and MAS may raise the S$NEER appreciation slope to guard against inflation.

  Weaknesses

  If global financial conditions tighten or domestic growth slows, support for SGD will weaken.

  Comparison

  USD/SGD is expected to fall to 1.255 by end-2026.

  Risks

  Another energy-price shock, deterioration in global risk appetite, or MAS no longer tightening.

• IDR

  Relatively weak

  Strengths

  Recent hikes should in theory provide some support.

  Weaknesses

  Government policy, the fiscal outlook, revisions to financial-sector laws, and perceptions of BI independence all create pressure, while inadequate FX reserve adequacy limits the ability for sustained intervention.

  Comparison

  USD/IDR is expected to be 17,800 by end-2026, and the report says IDR is one of the key laggards in Asia ex-Japan.

  Risks

  If policy credibility improves, capital inflows recover, or BI guidance becomes clearer, pressure on IDR may ease.

• INR

  Relatively weak

  Strengths

  The FCNR(B) concessional swap facility may bring foreign-currency deposit inflows, RBI intervention, and improved sentiment in the short term.

  Weaknesses

  Over the medium to long term, the RBI may opportunistically accumulate FX reserves to buffer the impact of short-term forward maturities on headline reserves, thereby limiting INR performance.

  Comparison

  USD/INR is expected to be 93.0 by end-2026, and the report believes INR may underperform within Asia ex-Japan.

  Risks

  If foreign-currency deposit inflows exceed expectations or the RBI allows greater INR appreciation, INR may be stronger than forecast.

Key data

• DXY29-Jun 101.20; Q3 2026 is 100.20; Q4 2026 is 98.00; Q4 2027 is 92.70The report expects the US dollar index to decline in the medium term.
• EUR/USD29-Jun 1.14; Q3 2026 is 1.15; Q4 2026 is 1.18; Q4 2027 is 1.25Supported by rate convergence, an ECB hawkish bias, and capital inflows.
• USD/JPY29-Jun 161.8; Q3 2026 is 158.0; Q4 2026 is 154.0; Q4 2027 is 145.0It may still rise in the short term, but could be near its peak in the medium term.
• USD/CNH29-Jun 6.79; Q3 2026 is 6.65; Q4 2026 is 6.50; Q4 2027 is 6.30Strong corporate FX conversion, trade surpluses, and RMB internationalization support CNH.
• USD/TWD29-Jun 31.9; Q3 2026 is 31.3; Q4 2026 is 30.8; Q4 2027 is 30.0Global AI demand, TSMC capex, and capital inflows support TWD.
• USD/SGD29-Jun 1.293; Q3 2026 is 1.280; Q4 2026 is 1.255; Q4 2027 is 1.225MAS maintains the S$NEER appreciation path to address inflation risks.
• USD/IDR29-Jun 17854.0; Q3 2026 is 17850; Q4 2026 is 17800; Q4 2027 is 17500The report still lists IDR as one of the main laggards in Asia ex-Japan.
• USD/INR29-Jun 94.3; Q3 2026 is 94.0; Q4 2026 is 93.0; Q4 2027 is 92.0FCNR(B) supports INR in the short term, but the RBI's tendency to accumulate FX reserves limits medium-term performance.
• USD/KRW29-Jun 1541.2; Q3 2026 is 1550; Q4 2026 is 1495; Q4 2027 is 1440For KRW to outperform, it needs a weaker USD, increased exporter repatriation, and an AI cycle that does not overheat.
• GBP/USD29-Jun 1.32; Q3 2026 is 1.33; Q4 2026 is 1.35; Q4 2027 is 1.36Relatively weaker versus EUR, with EUR/GBP expected to rise to 0.92 by end-2027.
• AUD/USD29-Jun 0.69; Q3 2026 is 0.71; Q4 2026 is 0.73; Q4 2027 is 0.75Terms of trade, bond capital flows, and low government debt provide support.
• NZD/USD29-Jun 0.57; Q3 2026 is 0.58; Q4 2026 is 0.60; Q4 2027 is 0.63An RBNZ hiking cycle, short positioning, and rising overseas holdings of NZGBs support NZD.

Impact & implications

From an investment perspective, the report tends to shift FX allocation focus in H2 2026 from safe-haven events to policy paths and capital flows. If the Fed does not hike and US data weakens, USD downside will become a cross-market main theme; currencies with clearer improvements in relative yields, capital inflows, and current-account support may perform better. Divergence in Asia ex-Japan depends more on local policy credibility, foreign inflows, AI supply-chain strength, and central-bank FX management approaches.

Risks

• Actual Fed hikes or stronger-than-expected US economic data could overturn the base case of USD weakness.
• Deterioration in global risk sentiment would hurt high-beta or AI-related currencies such as AUD, NZD, KRW, and TWD.
• Changes in oil prices and the Middle East situation would affect NOK, NZD, SGD inflation and Asia's external balances.
• Changes in central-bank intervention and FX policy could alter the paths of JPY, CNH, TWD, SGD, IDR, and INR.
• Local policy risks such as UK fiscal rules, Indonesian fiscal and regulatory policy, and India's RBI reserve strategy could cause currency divergence.
• If the AI cycle shifts from overheating to risk aversion, it could affect TWD- and KRW-related capital flows.

What to watch

• Whether the Fed maintains no-hike policy, and whether US growth and inflation momentum slow in H2 2026.
• Differences between the actual policy paths of the ECB, BoE, BoC, Riksbank, Norges Bank, BoJ, RBNZ, and MAS and market pricing.
• Current-account and portfolio-capital-flow trends in the eurozone, Switzerland, Sweden, China, Taiwan, and Singapore.
• Chinese corporate FX conversion, USD/CNY fixing errors, RMB internationalization policy, and the stability of US-China relations.
• Global AI demand, TSMC capex, foreign equity inflows into Taiwan, and overseas investment behavior of Korean retail investors.
• Japanese MoF intervention risk, net JPY short positioning, and the BoJ's response to upside inflation risks.
• Indonesia's fiscal deficit, resource-export policy, BI independence, and FX reserve adequacy.
• The scale of India's FCNR(B) inflows, RBI FX swaps, and subsequent FX reserve accumulation behavior.