Nomura leans toward near-term USD weakness but is not taking an overly high-conviction stance

Overview

This is a Nomura global FX and Asia rates strategy report. The core view is that lower-than-expected US June core CPI and PPI make markets more inclined toward a weaker USD ahead of the next batch of key US data releases; however, the report emphasizes that this is only a “lean” rather than a “high-conviction bet,” because Middle East geopolitical risks and foreign inflows into US equities may still support the USD. On a medium-term basis, the report continues to maintain a weaker USD view, citing relatively slower US growth, the Fed staying on hold while other major central banks may hike, investors reducing US asset allocations over the next 12 to 24 months, concerns over Fed independence, and FX hedge-related selling that could be triggered after USD weakness.

Core views

The report’s core views include: first, cooling US inflation data reduces hawkish risks and the USD may weaken in the short term, at least leaving a window before the July nonfarm payrolls and July core CPI; second, USD downside is not unconstrained, as Middle East conflict and inflows into US equities remain supporting factors; third, within Asia FX, the report prefers to express RMB outperformance through short USD/CNH while maintaining long EUR/INR and long SGD/IDR; fourth, in G10 it remains bearish GBP/NZD and closes short CAD/JPY; fifth, in Asia rates it maintains receive Sep-5y Korea vs. Taiwan and pay Sep-5y India NDOIS.

Analysis framework

The report uses macro data, central bank policy expectations, speculative positioning, cross-border fund flows, geopolitical risks, trade policy, and a relative value trading framework for analysis. The short-term USD view is mainly based on US CPI, PPI, core PCE expectations, FOMC pricing, and USD positioning; Asia FX views combine country fundamentals, trade surpluses, central bank policy, oil prices, fiscal risks, and external tariff risks; rates views are based on inflation, growth, policy rate paths, curve term premium, and regional relative valuation.

Methodology notes

• Macro StrategyUSD cycle and data surprise framework

  Assess the short-term direction of the USD through US inflation, employment, Fed pricing, and positioning.

  The report argues that after June CPI and PPI came in below expectations, June core PCE may be benign and the market importance of the July FOMC has declined; against a backdrop of crowded speculative long USD positions, the USD is more prone to a short-term downside adjustment.

• Cross-asset fund flowsMonitoring foreign inflows into US assets

  Use US equity ETF and mutual fund flows to assess support for the USD.

  The report notes that foreign inflows into US equities have remained strong so far in July, close to levels seen in June 2026 and during the 2024 US exceptionalism period, which may limit USD downside.

• Trade portfolio managementConviction scale

  1 means watching, 2 means watching closely, 3 means establishing one-third of the target position, 4 means establishing two-thirds of the target position, and 5 means establishing the full target position.

  The report uses a 0-to-5 conviction scale to describe position sizing within the strategy portfolio, with most new or maintained trades at 3/5 and short GBP/NZD at 4/5.

Asset mapping & comparison

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

• USD

  Core macro direction

  Strengths

  Continued foreign inflows into US equities, potential safe-haven demand from Middle East conflict, and a still relatively resilient US growth backdrop.

  Weaknesses

  US CPI and PPI came in below expectations, core PCE may be benign, Fed hike expectations have declined, and speculative long positioning is crowded.

  Comparison

  Relative to CNH, some Asian currencies, and some G10 currencies, the report believes short-term USD support is weakening.

  Risks

  If subsequent US nonfarm payrolls or core CPI reaccelerate, or if US equity inflows remain strong, the USD may regain support.

• USD/CNH

  New short trade

  Strengths

  CNH is supported by a lower USD/CNY fixing, onshore corporate FX conversion demand, China’s trade surplus, and expectations for stable US-China trade relations.

  Weaknesses

  The RMB is still affected by the overall direction of the USD, policy management, and external risk sentiment.

  Comparison

  The report switches from long CNH versus the 6-FX abridged CFETS basket to short USD/CNH to express USD weakness and RMB outperformance more directly.

  Risks

  A rebound in US data, renewed USD strength, or worsening US-China relations would weaken the trade.

• EUR/INR

  Maintained long trade

  Strengths

  INR faces pressure from the RBI forward book, slower realization of FCNR(B) inflows, US-India trade differences, and rising oil prices.

  Weaknesses

  If FCNR(B) inflows improve significantly or RBI supports INR more aggressively, upside in the trade may be limited.

  Comparison

  The report believes INR has recently underperformed in Asia ex-Japan, supporting its non-consensus view.

  Risks

  A decline in oil prices, improved trade negotiations, or stronger-than-expected FX inflows into India could lead to an INR rebound.

• SGD/IDR

  Maintained long trade

  Strengths

  Strong Singapore Q2 GDP, support from AI-related manufacturing demand, risk of tighter FX policy by MAS, and the appreciating S$NEER policy band support SGD.

  Weaknesses

  IDR has near-term support from cooling US inflation and S&P maintaining Indonesia’s rating, and has also shown some recent outperformance.

  Comparison

  The report still prefers SGD over IDR because concerns around Indonesia’s fiscal position, subsidies, policy uncertainty, and Bank Indonesia’s independence are more pronounced.

  Risks

  If Indonesia’s fiscal policy improves, market reforms boost confidence, or MAS does not tighten, upside in SGD/IDR may be capped.

• GBP/NZD

  High-conviction short trade

  Strengths

  The UK’s fiscal fragility and the possibility of higher taxes under the new government may weigh on economic confidence and prompt offsetting BoE monetary policy.

  Weaknesses

  GBP has rebounded on expectations around the appointment of the finance minister, and short-term technicals may create noise.

  Comparison

  On the NZD side, RBNZ has already started its expected hiking cycle, and the carry disadvantage for NZD is gradually easing.

  Risks

  If the UK fiscal plan is better than expected or rapid NZD short covering runs its course, downside in GBP/NZD may narrow.

• Asia rates

  Relative value and directional rates trades

  Strengths

  The Korea market is pricing in four hikes over the next year while Nomura expects two, supporting receive 5y swaps; rising India inflation and oil prices support pay Sep-5y NDOIS.

  Weaknesses

  Taiwan rate valuations have become less attractive after the recent rebound; India front-end rates may be constrained by RBI staying on hold and improved liquidity.

  Comparison

  The report maintains receive Sep-5y Korea vs. Taiwan and maintains pay Sep-5y India NDOIS.

  Risks

  A more hawkish Bank of Korea, lower Taiwan inflation, or easing oil and inflation pressure in India would all affect trade performance.

Key data

• US June core PCE forecast+0.175% m-o-mNomura forecast, to be released on 2026-07-30.
• Change in end-2026 Fed funds pricingabout 27bp of hikes, versus about 43bp on July 13After inflation data cooled, hawkish Fed repricing eased.
• Bab el-Mandeb Strait related risk exposureabout 8.7% of global oil supply, 20% of global container shippingIf the US-Iran conflict escalates and affects export routes, it could cause a severe negative shock to global markets.
• short USD/CNHtarget 6.55, about 3% return, through end-October 2026, conviction 3/5Adjusted from long CNH versus 6-FX abridged CFETS basket.
• USD/CNY fixingdown 80 pips over the past week to 6.7909The report says this reached a year-to-date low, supporting the RMB outperformance view.
• China trade surplusUSD125.6bnMay 2026 data, used to support onshore corporate FX conversion demand and RMB performance.
• long EUR/INRtarget 113, about 4% return, through end-September 2026, conviction 3/5Based on pressure from RBI FX forward positions, FCNR(B) inflow timing, US-India trade differences, and oil price risks.
• RBI net short forward book-USD106.6bnAs of end-May 2026, this is an important basis for the report’s view that RBI has limited room to support INR.
• India merchandise trade deficitUSD30.4bn in June 2026, USD28.2bn in MayImport growth widened the deficit, putting pressure on INR.
• long SGD/IDRtarget 14,380, about 10% total return, through end-August 2026, trailing stop 2.5%, conviction 3/5Singapore growth and the risk of tighter MAS policy support SGD, while Indonesia fiscal and policy risks weigh on IDR.
• Singapore Q2 GDP5.7% y-o-yStronger than expected, driven by AI-related manufacturing demand.
• Indonesia year-to-date budget deficitIDR196.5trnJune 2026 data; the report believes the fiscal outlook is weakening.
• short GBP/NZDtarget 2.25, through end-September 2026, conviction 4/5The report believes the GBP rebound is temporary, and the UK’s fiscal fragility and risk of higher taxes may weigh on confidence.
• pay Sep-IMM 5y India NDOIStarget 6.50%, through end-August 2026, conviction 3/5Higher India inflation, rising oil prices, and term premium support the pay-fixed view.
• India June CPI4.4%, versus 3.9% in MayRose to an 18-month high, above the midpoint of RBI’s 4.0% inflation target.

Impact & implications

The investment implication is that short USD positioning is more attractive in the near term, but excessive concentration should be avoided. Clearer ways to express the view are relative trades with more explicit fundamental and policy catalysts, such as short USD/CNH, long SGD/IDR, and short GBP/NZD. For rates investors, the report recommends focusing on Korea versus Taiwan, India NDOIS, and front-end Singapore rates. If Middle East conflict escalates, oil prices rise, or capital continues to flow heavily into US equities, USD weakness and some long Asia FX trades may be restrained.

Risks

• Escalation of the US-Iran conflict could lift safe-haven demand and oil prices, limiting USD downside and hitting risk assets.
• Continued strong foreign inflows into US equities may extend support for the USD.
• If US July nonfarm payrolls or July core CPI come in stronger than expected, the short-term window for USD weakness may reverse.
• If China-US trade relations deteriorate, the CNH outperformance thesis may weaken.
• India faces US tariffs, rising oil prices, a wider trade deficit, and uncertainty around RBI FX management.
• Concerns over Indonesia’s fiscal deficit, subsidy spending, market reforms, and Bank Indonesia’s independence may intensify IDR volatility.
• Taiwan rate valuations have become less favorable, which may reduce the attractiveness of the Korea versus Taiwan rates relative value trade.

What to watch

• The FOMC meeting on 2026-07-29 EST.
• US June core PCE to be released on 2026-07-30.
• US July NFP to be released on 2026-08-07.
• US July core CPI to be released on 2026-08-12.
• Whether the US-Iran conflict in the Middle East escalates, and whether export routes such as the Bab el-Mandeb Strait are affected.
• Whether foreign capital rotates from US equities into emerging markets or non-US equities.
• Singapore MAS policy announcement before 2026-07-31.
• Singapore June CPI on 2026-07-23.
• Indonesia’s parliamentary discussion in August on the State Finance Omnibus Bill, and the 2027 draft budget.
• The Trump-Xi Summit around late September 2026 and the stability of US-China relations.