Nomura believes the weaker USD theme is strengthening, with short USD/CNH, long EUR/INR, and long EUR/JPY as preferred trades

Overview

This is a global FX and Asian rates strategy report centered on the weaker USD theme. Nomura believes concerns over US growth and policy credibility, relative macro momentum, and changes in capital flows will continue to weigh on the USD. Accordingly, it particularly recommends EUR/INR, EUR/JPY, and USD/CNH trades, while also presenting relative-value views on Asian currencies and rates.

Core views

Nomura maintains its weaker USD view for several reasons: markets are increasingly concerned about a slowdown in the US economy, with recent nonfarm payrolls and retail sales data weak; US economic data surprises are notably negative relative to major economies such as Europe, while European data surprises are positive; lower US inflation readings support the Fed keeping rates unchanged for an extended period; the US is attempting to suppress rises in long-term Treasury yields; market concerns over Fed credibility and independence are rising; and, despite the USD's recent weakness, overall market positioning remains long USD. The report believes these factors are collectively continuing to build the weaker USD theme. For near-term events, the report focuses on Treasury Secretary Bessent potentially discussing fiscal consolidation on 24 August. Nomura expects him to try to convince markets that current fiscal-deficit pressure is temporary, bond-market pressure is manageable, and spending cuts and revenue-raising arrangements are in place. If the outcome lacks a credible and sufficiently detailed fiscal plan, markets may continue to question the fiscal outlook; the USD could come under pressure, particularly as authorities further constrain increases in long-term yields. US economic actions against Iran are also a variable: if substantial sanctions are imposed on entities such as China that trade with Iran, US-China tensions could intensify. However, the report judges that, if the US seeks to preserve stable relations with China, measures may be more likely to target smaller Chinese companies rather than Chinese financial institutions. US consumer confidence on 25 August, July core PCE and Nvidia's second-quarter results on 26 August, and the Jackson Hole meeting on 27-29 August could all affect markets. The report states that consensus expects core PCE to rise by only 0.2% month-on-month, supporting its view that the Fed will remain on hold for a prolonged period; market pricing implies 9bp of hikes in September and 22bp by December 2026. If Warsh delivers hawkish remarks at Jackson Hole, the USD may receive initial support, although whether markets trust his comments remains to be seen. Among the highest-conviction FX trades, Nomura raises long EUR/INR to 4/5, with a target of 113 by end-September and potential returns of around 4%. The report believes that the FCNR(B) scheme ending early at end-August rather than the originally planned end-September could disappoint markets that had expected larger and more prolonged USD inflows. Its survey shows that 65% of respondents believe the RBI has sufficient reserves and tools to stabilize the rupee, but 35% remain concerned that the early end will remove an important channel for USD inflows and return balance-of-payments pressures to prominence. The report also worries about India's current account, capital inflows, the Iran war and high energy prices, seasonal deterioration in the current account in the third quarter, the potential impact of artificial intelligence on the services surplus, and India's exclusion from the Bloomberg Global Aggregate Index. Since FCNR(B) began on 8 June 2026, USD/INR has risen only 0.8%, while DXY has fallen around 1.3%, causing the rupee's nominal effective exchange rate to weaken by around 2.3%. Nomura therefore believes the RBI has little strong incentive to push USD/INR sharply lower. The RBI has sold USD111.2bn in the spot market from October 2024 to May 2026; as of end-June 2026, its net FX forward short position was USD103.3bn, which Nomura estimates could expand to USD175bn after the scheme ends. Even assuming FCNR(B) brings around USD80bn, reserve adequacy calculated using the average IMF metric could rise to around 249%; however, including forward positions, it could be only around 184% at end-August, below 252% in September 2024 and the February 2021 peak of 320%. Nomura maintains short USD/CNH, with conviction of 4/5, a target of 6.55 by end-October, and potential returns of around 3%. It believes the CNY appreciation trend remains intact: on 20 August, the USD/CNY fixing fell to 6.7808, its lowest level since 8 February 2023. The positive deviation of the actual fixing relative to the model forecast was 679bp, the largest since 27 February 2026, but Nomura interprets this as managing the pace of appreciation rather than preventing appreciation. Over the past month, onshore USD/CNY has fallen only 77bp, equivalent to annualized CNY appreciation against the USD of around 9.3%, below the approximately 17% annualized pace in the month before 26 February 2026. The report also notes that China's July trade surplus reached USD112.5bn, corporate net FX settlement and sales were around 75% after adjusting for CNY settlement, and exporter FX conversion demand remains strong. China-related equity ETFs recorded modest net inflows of USD370m month-to-date as of 20 August, while emerging-market ETFs heavily allocated to Chinese equities saw inflows of USD5.2bn over the same period. In addition, the payment date for around USD3.9bn of large offshore dividends by Hong Kong-listed Chinese companies has passed, and the approaching end of dividend season helps remove one source of pressure on CNH. The key risk is US actions against Iran and entities trading with it, as China is Iran's largest trading partner. In G10 FX, Nomura initiated long EUR/USD on 20 August, with a target of 1.20 by year-end. The report believes improving euro-area macro momentum and overly strong US growth expectations could drive further rate-spread convergence. The ECB's reaction function appears more hawkish than the Fed's; the ECB may hike in September, while Nomura expects the Fed not to hike this year. If the front-end spread narrows further to 100bp, EUR/USD could rise toward 1.20. The report also notes that long USD and short EUR positions have accumulated since the US-Iran war began; as EUR/USD upside momentum strengthens, CTAs could shift toward adding EUR longs. Euro-area net securities investment inflows reached a record in June, and the euro area itself has a stable current-account surplus, with flows supporting the euro. Nomura also raises its conviction on long EUR/JPY from 3/5 to 4/5, with a target of 190 by end-September, citing limited near-term intervention risk, concerns about JGB supply, and capital outflows, while acknowledging that fundamentals have not changed materially. Among other Asian currencies, Nomura lowers conviction on long SGD/IDR from 4/5 to 3/5, with a target of 14,460 by end-October, potential returns of around 4%, and a stop-loss at 13,910. The report still believes Indonesia's macroeconomic conditions and fundamentals will weigh on the rupiah: whether the new Bank Indonesia governor can rebuild policy credibility is uncertain, while closer and more growth-focused policy coordination between the central bank and finance ministry could add pressure. Fitch also questions the sustainability of Indonesia's 2027 fiscal-deficit target of 2.4% of GDP. Policy and political intervention in the corporate sector could damage risk appetite; the second-quarter current-account deficit reached a record USD12.5bn, above the market expectation of USD11.7bn. Nomura's economics team forecasts Indonesia's 2026 current-account deficit at 1.7% of GDP, versus -0.1% in 2025. The report considers Singapore's fundamentals strong, and believes an appreciating S$NEER policy setting will continue to support the SGD. July non-oil domestic exports rose 24.2% year-on-year, following 20.8% in June, including 112.0% growth in electronics exports. Nomura expects AI-related demand and the technology upcycle to persist, supporting GDP growth of 5.7% in 2026. Its economics team expects July core inflation to rise to 2.3% year-on-year from 1.6% in June, owing to lagged increases in electricity and gas prices; the risk of further tightening in exchange-rate policy could support the SGD. In Taiwan, Nomura initiated short USD/TWD on 20 August, with conviction of 3/5, a target of 31.0 by end-November, and potential returns of around 3%. The rationale is that Taiwan benefits from the AI cycle and foreign inflows: foreign investors were net buyers of USD5.8bn of Taiwanese equities from 1 to 21 August, following average monthly outflows of USD20.8bn in June and July. July export orders were USD98bn, up 61.9% year-on-year, while the second-quarter current-account surplus was USD58.4bn and totaled USD121bn in the first half of 2026. The report also notes that Taiwan's life-insurance industry FX hedge ratio fell to a record low of 42.89% at end-June; if the USD weakens over the medium term, hedging could increase. Its exchange-rate valuation model indicates the TWD is undervalued by 15.7%. Nomura maintains short USD/THB, with conviction of 3/5, a target of 32.0 by end-September, potential returns of around 4%, and lowers the stop-loss from 33.9 to 33.1. The report expects a surge in Thai FDI approvals, the central bank primarily smoothing FX volatility, and seasonal third-quarter current-account improvement to support the baht. Thailand's second-quarter FDI approvals rose 256% year-on-year to THB929bn; Nomura economists believe this contributed 0.3 percentage points to actual GDP growth of 2.4% year-on-year in the first half of 2026. The current account is expected to shift from a USD17.7bn deficit in the second quarter to a USD1.1bn surplus in the third quarter. For other G10 trades, Nomura maintains short GBP/NZD, believing there are no clear signs of renewed UK inflation acceleration and expecting the Bank of England not to hike in 2026. The RBNZ, by contrast, is expected to hike further on 2 September and 9 December, but as the tightening cycle approaches its end, market pricing for higher New Zealand rates may be excessive, limiting NZD upside. Short NOK/SEK remains only on the watchlist, with conviction of 2/5 and no position initiated, because oil prices remain at recent highs and the Middle East situation has not improved. If these factors fade, the Riksbank's relatively more hawkish stance versus Norges Bank could create room for NOK/SEK downside. Asian rates strategy is primarily based on relative value. Nomura maintains receiving Korea H27-7y NDIRS, with conviction of 3/5 and a target of 3.95% by end-September. Its economics team's baseline is for a 25bp BoK hike, which markets also favor, but forward swap rates beyond one year are already above 4% and USD/KRW is far from its highs; Nomura therefore believes the BoK is unlikely to be more hawkish than market expectations. If better entry levels emerge next week, it may convert the received 7-year position into a curve-flattening trade before the meeting. The risk is that Korean rates may remain correlated with KOSPI sentiment. Nomura also maintains its relative-value trade of paying 5y5y SGD rates and receiving HKD rates, with conviction of 3/5. The rationale for the paid SGD leg is that 5y5y yields remain below 3%, Singapore growth and inflation may surprise to the upside, MAS has modestly tightened liquidity, and long-dated bond supply is heavy. To partially hedge US rate risk, the report adjusts the HKD-leg DV01 ratio from 2:1 back to 1:1.

Analysis framework

The report first explains the macro backdrop for USD weakness through US growth, inflation, fiscal credibility, rate policy, and positioning. It then separately examines drivers including growth, current accounts, FX reserves, capital flows, central-bank policy, exchange-rate pricing, and supply across currency pairs and rate markets, while providing trade direction, targets, time horizons, stop-losses, or conviction levels. The Asian rates section employs a relative-value approach, managing cross-market rate risk through rate levels, policy expectations, bond supply, and DV01 ratios.

Methodology notes

• Macroeconomic framework

  FX analysis based on relative macro momentum, monetary-policy expectations, and cross-border capital flows

  The report compares data surprises, growth, and policy paths in the US versus economies such as the euro area, then combines this with current accounts, securities investment flows, and market positioning to infer the direction of the USD and related currency pairs.

• Fixed income and credit analysis

  DV01-matched cross-market rates relative-value trade

  The report uses DV01 ratios in SGD and HKD rates trades to make the rate sensitivity of the two legs more comparable, while partially hedging US rate risk through the HKD receiving leg.

• Valuation method

  FX valuation model

  The report uses its own exchange-rate valuation model to assess the TWD as 15.7% undervalued, using this as one supporting factor for its short USD/TWD view.

Asset mapping & comparison

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

• USD/CNH

  The report maintains a short position, supported mainly by the CNY appreciation trend, exporter FX conversion, the trade surplus, and offshore capital inflows.

  Strengths

  Target of 6.55 through end-October and conviction of 4/5; the July trade surplus was USD112.5bn, while China- and emerging-market-related ETFs both recorded inflows in August.

  Weaknesses

  The positive deviation of the fixing relative to the model forecast has widened, indicating that authorities are managing the pace of appreciation.

  Comparison

  USD/CNY declined 77bp over the past month, corresponding to around 9.3% annualized CNY appreciation, below the approximately 17% annualized pace in February 2026.

  Risks

  US actions against Iran and entities trading with Iran could affect China.

• EUR/INR

  The report is long, believing the rupee will underperform the euro due to pressure from its external account, inflows, and reserve structure.

  Strengths

  Target of 113 through end-September, potential returns of around 4%, and conviction raised from 3/5 to 4/5.

  Weaknesses

  The FCNR(B) scheme ends early, while India's current account, energy prices, and capital inflows face pressure.

  Comparison

  Since FCNR(B) began, USD/INR has risen 0.8% while DXY has fallen around 1.3%, and the rupee's nominal effective exchange rate has weakened around 2.3%.

  Risks

  The Iran war and high energy prices, the impact of AI on the services surplus, delayed index inclusion, and reserve forward positions could all intensify balance-of-payments pressure.

• EUR/JPY

  The report is long, believing limited near-term intervention risk, JGB supply concerns, and capital outflows support the trade.

  Strengths

  Target of 190 through end-September, with conviction raised from 3/5 to 4/5.

  Weaknesses

  The report states that fundamentals have not changed materially.

  Risks

  A 27 August speech by BoJ Deputy Governor Ryozo Himino and his comments on the policy stance after a possible September hike.

• EUR/USD

  The report initiates a long position, betting on weaker US growth, rate convergence, and improved euro capital flows.

  Strengths

  Target of 1.20 through year-end; euro-area net securities investment inflows reached a record in June and the region has a stable current-account surplus.

  Weaknesses

  Markets still need to validate continued weaker US data and the ECB's relatively hawkish stance.

  Comparison

  The report believes EUR/USD could approach 1.20 if the front-end rate spread narrows to 100bp.

  Risks

  Hawkish remarks by Warsh at Jackson Hole could initially support the USD.

• USD/TWD

  The report initiates a short position, believing the AI cycle, foreign inflows, exports, and the current-account surplus favor the TWD.

  Strengths

  Target of 31.0 through end-November and potential returns of around 3%; foreign investors were net buyers of USD5.8bn of Taiwanese equities from 1 to 21 August.

  Weaknesses

  Taiwan's life-insurance sector FX hedge ratio was only 42.89% at end-June, and hedge adjustments amid USD weakness could cause market volatility.

  Comparison

  The report's exchange-rate valuation model indicates the TWD is undervalued by 15.7%, making it one of Asia's most undervalued currencies.

  Risks

  Nvidia's second-quarter earnings and forward guidance will affect AI-related market sentiment.

• USD/THB

  The report maintains a short position, believing FDI approvals, central-bank smoothing of the exchange rate, and a third-quarter current-account improvement support the baht.

  Strengths

  Target of 32.0 through end-September, potential returns of around 4%, and conviction of 3/5.

  Comparison

  The report expects the current account to move from a USD17.7bn deficit in the second quarter to a USD1.1bn surplus in the third quarter.

• SGD 5y5y IRS versus HKD

  The report maintains a relative-value trade of paying SGD rates and receiving HKD rates.

  Strengths

  Singapore growth and inflation may surprise to the upside, 5y5y SGD yields are below 3%, and long-dated bond supply is heavy.

  Weaknesses

  The receiving HKD leg is needed to partially hedge US rate risk.

  Comparison

  The DV01 ratio is adjusted from 2:1 back to 1:1.

  Risks

  The trajectory of long-term US interest rates remains unclear.

Key data

• USD/CNH trade target6.55Short USD/CNH, targeting approximately 3.0% returns by end-October, with conviction of 4/5.
• EUR/INR trade target113Long EUR/INR, targeting around 4% returns by end-September; conviction raised from 3/5 to 4/5.
• EUR/JPY trade target190Long EUR/JPY, with a target by end-September; conviction raised from 3/5 to 4/5.
• EUR/USD trade target1.20Initiated long on 20 August, with a year-end target.
• China July trade surplusUSD112.5bnThe report believes the strong surplus and exporter FX conversion demand support the CNY.
• RBI spot FX salesUSD111.2bnCumulative from October 2024 to May 2026; the report believes this explains its preference for replenishing reserves.
• RBI net FX forward short positionUSD103.3bnAs of end-June 2026; the report estimates it could reach USD175bn after the FCNR(B) scheme ends.
• Indonesia second-quarter current account-USD12.5bnA record deficit, above the market expectation of -USD11.7bn.
• Singapore July NODX growth24.2% YoY20.8% in June; electronics NODX rose 112.0%.
• Taiwan second-quarter current-account surplusUSD58.4bnThe cumulative surplus for the first half of 2026 was USD121bn.
• Thailand second-quarter FDI approvalsTHB929bnUp 256% year-on-year; the report states this was equivalent to 8.6% of rolling four-quarter GDP.
• Korea H27-7y NDIRS target3.95%Receiving-trade target by end-September, with conviction of 3/5.

Impact & implications

The strategic implication of the report is that, if US fiscal communication fails to restore market confidence, US growth data continue to weaken, and US-Europe rate expectations continue to converge, USD weakness will support EUR/USD, EUR/JPY, and multiple Asian currency-pair trades. Within the region, the report views India's external-account and reserve pressures as the central rationale for EUR/INR, regards China's FX conversion, trade surplus, and capital flows as support for CNH strength, and differentiates Asian currency performance through country-specific differences in growth, inflation, current accounts, and policy credibility.

Risks

• If the US fiscal-consolidation plan lacks credibility and detail, market doubts over the fiscal outlook could persist and intensify pressure on the USD.
• Hawkish signals from Warsh at Jackson Hole could initially support the USD.
• If US actions against Iran and its trading partners materially affect China, they could intensify US-China tensions and affect the CNH view.
• High energy prices, a deteriorating current account, insufficient capital inflows, and the scale of FX forward short positions could intensify pressure on the rupee.
• Indonesia's policy credibility, fiscal discipline, political intervention, and current-account deficit are the key risks for the rupiah.
• Korean rates may remain correlated with KOSPI sentiment, posing a risk to the Korea NDIRS receiving position.
• Before oil prices and Middle East geopolitical conditions ease, the short NOK/SEK trade does not meet conditions for initiation.

What to watch

• Bessent's remarks on US fiscal consolidation and actions against Iran on 24 August.
• US consumer confidence on 25 August, US July core PCE on 26 August, and Nvidia's second-quarter results and forward guidance.
• The Jackson Hole meeting on 27-29 August, particularly a potential speech by Warsh on 28 August.
• The USD/CNY fixing, exporter FX conversion, the pace of CNY appreciation, and whether US measures against Iran involve China.
• Balance-of-payments flows following the FCNR(B) scheme's end at end-August, as well as changes in RBI reserves and forward positions.
• Indonesian parliamentary discussion of the national fiscal framework bill and the 3% fiscal-deficit ceiling rule.
• Singapore's July core inflation data and whether MAS further tightens exchange-rate policy.
• BoJ Deputy Governor Ryozo Himino's speech on 27 August and his signals regarding possible September policy action.
• The BoK meeting, policymakers' dot plot, and KOSPI sentiment.
• Norwegian government FX-purchase data to be released on 1 September.