USD Faces Mixed Near-Term Forces; Nomura Still Prefers to Be Short USD
AI summary card
USD Faces Mixed Near-Term Forces; Nomura Still Prefers to Be Short USD
Against a backdrop of weakening US data and concerns over Fed policy credibility, the report maintains high-conviction short USD/CNH and long SGD/IDR views, while adding a tactical long EUR/JPY position.
- Maintain short USD/CNH (conviction 4/5), with a target of 6.55 and expected upside of around 3.0% through end-October.
- Maintain long SGD/IDR (4/5), with a target of 14,460 and expected upside of around 4% through end-October.
- Re-establish tactical long EUR/JPY (3/5), with a target of 190 and stop-loss at 181, on the view that JPY fundamentals are insufficient to support sustained appreciation.
- Lower conviction in short USD/THB from 4/5 to 3/5, as oil prices, Bank of Thailand FX purchases, and tourism seasonality create near-term headwinds.
- Shift the South Korea rates strategy from 2s7s flattening to outright receiving 7-year NDIRS (3/5).
Report interpretation
Overview
Nomura believes the USD has declined since turning weaker in mid-July, but the recent move has been rapid and disrupted by multiple opposing factors. The report continues to view weaker US macro data, moderating inflation, priced-out expectations for near-term Fed hikes, and concerns over policy credibility as the main USD negatives, while acknowledging support from US equity inflows, higher energy prices, and carry-trade recovery.
Core views
The core view is to remain bearish USD, with a preference for holding short USD/CNH and long SGD/IDR. The report also restarts long EUR/JPY, maintains short GBP/NZD and long EUR/CAD, and places short NOK/SEK on the watchlist. In Asian rates, it prefers relative performance in the Korean 5- to 7-year sector, holds received 7-year NDIRS, and continues to hold a portfolio of paid 3-year NDIRS and a 50% long position in 30-year Chinese government bonds.
Analysis framework
The report assesses the relative performance of major currency pairs and rates curves by combining US growth, employment, and inflation data; the Fed policy path and credibility risks; cross-border equity flows; energy prices; central-bank intervention and liquidity; current accounts; and valuation deviations.
Methodology notes
Explains relative FX performance through growth, inflation, monetary policy, capital flows, and external accounts
Incorporates US and other economies' macro data, central-bank reaction functions, capital flows, and commodity prices into trading assessments.
Compares term spreads, policy-rate pricing, and bond supply and demand
Identifies opportunities to receive, pay, and position for curve flattening through swap curves, government-bond yields, and cross-market spreads.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- USD/CNHShort
- Strengths
- A weaker CNH fixing, undervaluation, improved flows into Chinese equities, the approaching end of the Hong Kong-listed company dividend season, and possible exporter FX conversion could support CNH.
- Weaknesses
- CNH appreciation may be constrained by policy management.
- Comparison
- Bullish CNH relative to USD.
- Risks
- Escalation of the US-Iran conflict, Chinese retaliation against US restrictions damaging summit expectations, or PBoC action to slow CNH appreciation.
- SGD/IDRLong
- Strengths
- Upgraded Singapore growth expectations, a widening positive output gap, and S$NEER appreciation policy support SGD; concerns over Indonesian policy credibility, fiscal conditions, and the current account weigh on IDR.
- Weaknesses
- IDR had previously seen a brief rebound following the central-bank governor nomination.
- Comparison
- Favors SGD strengthening relative to IDR.
- Risks
- Bank Indonesia maintaining policy continuity, better-than-expected government-central bank coordination, or improved global risk appetite.
- EUR/JPYLong
- Strengths
- Markets have largely priced in Bank of Japan rate hikes, while fiscal concerns, a lack of capital repatriation, and relatively clean JPY positioning limit JPY strength.
- Weaknesses
- Risks of Bank of Japan hikes and intervention remain.
- Comparison
- Favors EUR strengthening relative to JPY.
- Risks
- Further FX intervention, an abrupt hawkish shift in government policy, or cabinet changes triggering JPY short covering.
- USD/THBShort
- Strengths
- Thailand's seasonally improving third-quarter current account, data-center investment, and the Bank of Thailand's inclination to limit significant THB depreciation provide support.
- Weaknesses
- High oil prices, central-bank FX purchases, and the near-term tourism low season weaken THB.
- Comparison
- Favors THB strengthening relative to USD, but with reduced conviction.
- Risks
- Further increases in oil prices, weaker tourism data, or deterioration in the balance of payments.
- South Korea 7-Year NDIRSReceive Rates
- Strengths
- The market-implied terminal rate is too high, and improved bank liquidity may strengthen demand for Korean government bonds.
- Weaknesses
- The front end still faces rate-hike expectations, while weakness in global long-end bonds increases volatility.
- Comparison
- Prefers relative performance in Korean 5- to 7-year rates.
- Risks
- More aggressive Bank of Korea hikes, long-end government-bond supply, or rising global yields.
Key data
- DXY PerformanceDown nearly 1% from 2026-07-17 to 2026-08-14Most of the decline was concentrated in the three trading sessions from July 29 to 31.
- US July Nonfarm Payrolls23K below expectationsThe report views this as one of the bearish factors for the USD.
- USD/CNH Target6.55Conviction 4/5, target horizon through end-October, with expected upside of around 3.0%.
- SGD/IDR Target14,460Conviction 4/5, target horizon through end-October, with expected upside of around 4%.
- EUR/JPY Trade ParametersEntry 183.90, target 190, stop-loss 181Conviction 3/5, target horizon through end-September.
- Singapore 2026 GDP Forecast4.5% to 5.5%Singapore's Ministry of Trade and Industry raised the forecast range; Nomura's economics team forecasts 5.7%.
- China 10-Year Government Bond YieldAround 1.68%The report states that government bonds strengthened and demand for longer maturities was robust.
Impact & implications
If US data continue to weaken and markets further scale back Fed-tightening expectations, the USD's weak trend may continue, benefiting the relative performance of CNH, SGD, and certain European currencies. Conversely, continued increases in energy prices, persistent US equity inflows, or expanding carry trades could limit USD downside and increase trade volatility.
Risks
- Continued large US equity inflows supporting the USD.
- Escalation in the Strait of Hormuz situation and the US-Iran conflict pushing up energy prices.
- FOMC minutes or the inflation outlook changing market pricing of the rate-hike path.
- Bank of Japan policy, FX intervention, or changes in the Japanese government's stance triggering a sharp JPY rebound.
- Direct FX operations by Asian central banks altering short-term currency moves.
- Policy or external-account performance in economies such as China, Indonesia, and Thailand falling short of expectations.
What to watch
- The July FOMC meeting minutes released on August 20 and their language on inflation and policy disagreements.
- Japan's nationwide CPI on August 21 and its impact on expectations for a September Bank of Japan hike.
- China's July FX settlement and sales data, the CNH central parity fixing, and exporter FX conversion trends.
- Bank Indonesia's policy decision on August 19 and signals related to central-bank independence.
- Singapore NODX data, Thailand's second-quarter GDP, and high-frequency tourism data.
- Oil prices, the US-Iran situation, US equity flows, and changes in USD carry trades.