Near-Term USD Bullish and Bearish Factors Intertwine, but Strategy Still Favors Shorting the USD
AI summary card
Near-Term USD Bullish and Bearish Factors Intertwine, but Strategy Still Favors Shorting the USD
Nomura maintains high-conviction short USD/CNH and long SGD/IDR positions, while monitoring short-term volatility from the yen, oil prices, US capital flows, and Asian central bank policies.
- Maintain short USD/CNH and long SGD/IDR, both with 4/5 conviction.
- Restart long EUR/JPY, with a target of 190 and 3/5 conviction.
- Lower short USD/THB conviction from 4/5 to 3/5, with a target of 32.0.
- Korea strategy shifts from 2s7s flatteners to outright receiving in 7-year NDIRS.
- Weaker US macro conditions are negative for the USD, but equity inflows, high oil prices, and carry trades support it.
Report interpretation
Overview
The report believes that the USD has weakened since mid-July, although most of the decline was concentrated in several trading days at the end of July. Since entering August, bearish and bullish factors have offset one another. Nomura still favors USD weakness and positions in relative-value trades across Asian currencies, G10 crosses, and Asian rates markets.
Core views
The main downside pressures on the USD stem from softer US nonfarm payroll and core inflation data, reduced market pricing for near-term Fed hikes, and concerns over the Fed's independence and credibility. Offsetting factors include strong foreign inflows into US equities, elevated energy prices amid the Strait of Hormuz situation, and the rapid recovery of carry trades after intervention. The report considers core short-USD trades to retain high certainty, but advises caution in managing event-driven volatility in the near term.
Analysis framework
The report combines macro data, central bank policy expectations, cross-border capital flows, FX fixings and intervention, inflation and growth momentum, energy prices, positioning, and yield-curve valuations to form directional FX and rates relative-value views; trade sizing is managed using a conviction scale of 1 to 5.
Methodology notes
Macro data, policy expectations, capital flows, and risk appetite jointly determine FX direction
US growth and inflation, Fed expectations, energy prices, equity flows, FX carry, and policy intervention are assessed collectively.
A 1-to-5 scale expresses trade allocation intensity
1 is for monitoring, 2 for close monitoring, 3 for approximately one-third of target position size, 4 for approximately two-thirds, and 5 for full target position size.
Compare term structure, terminal-rate pricing, liquidity, and supply-demand conditions
Used to assess rate-curve and swap opportunities in Korea, Thailand, China, Singapore, and Hong Kong.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- USD/CNHShort USD, long offshore renminbi
- Strengths
- A weaker RMB fixing, undervaluation, foreign inflows into Chinese equities, the approaching end of dividend season, and potential exporter FX conversion may provide support.
- Weaknesses
- RMB appreciation potential may be constrained by policy management.
- Comparison
- One of the report's highest-conviction short-USD expressions, with 4/5 conviction.
- Risks
- Escalation of the US-Iran conflict, Chinese retaliatory sanctions against the US, and slower RMB appreciation due to central bank operations.
- SGD/IDRLong Singapore dollar, short Indonesian rupiah
- Strengths
- Singapore's growth and policy fundamentals are solid; Indonesia faces pressure related to central bank independence, fiscal conditions, and the current account.
- Weaknesses
- Policy continuity in Indonesia and central bank measures may temporarily ease concerns.
- Comparison
- A core high-conviction trade alongside USD/CNH, with 4/5 conviction.
- Risks
- Improved credibility of Bank Indonesia policy, stronger-than-expected fiscal consolidation, or improved risk appetite.
- EUR/JPYLong euro, short yen
- Strengths
- The market has largely priced in Bank of Japan rate hikes; Japanese fiscal concerns, a lack of capital repatriation, and relatively clean yen short positioning limit yen strength.
- Weaknesses
- Expectations for a Bank of Japan hike in September may still increase yen volatility.
- Comparison
- A restarted tactical long, with 3/5 conviction.
- Risks
- Further FX intervention, a marked hawkish shift in government policy, or rapid covering of yen shorts.
- EUR/INRLong euro, short Indian rupee
- Strengths
- India's elevated trade deficit, US tariff risks related to Russian oil, and constraints from Reserve Bank of India FX operations are negative for the rupee.
- Weaknesses
- FCNR(B)-related inflows may support the rupee in the short term.
- Comparison
- A medium-conviction trade, with 3/5 conviction.
- Risks
- Significant improvement in foreign inflows, a narrowing trade deficit, or USD weakness exceeding expectations.
- USD/THBShort USD, long Thai baht
- Strengths
- The data-center FDI pipeline, potential central bank restraint on sharp baht depreciation, and seasonal improvement in the third-quarter current account support the baht.
- Weaknesses
- High oil prices, central bank USD purchases, and the tourism low season are unfavorable for the baht.
- Comparison
- Trade maintained, but lowered from high conviction to 3/5.
- Risks
- Further oil-price increases, weaker tourism data, and deterioration in Thailand's balance of payments.
- Korea 7-year NDIRSReceive fixed rates
- Strengths
- Market pricing for the terminal rate is too high, while improved bank liquidity may increase demand for Korean government bonds.
- Weaknesses
- The front end remains affected by rate-hike expectations and seasonally higher CD fixings.
- Comparison
- Outright receiving in 7-year rates replaces the 2s7s flattener, with 3/5 conviction.
- Risks
- More aggressive Bank of Korea hikes, continued increases in global long-end rates, and weak demand at bond auctions.
- EUR/CADLong euro, short Canadian dollar
- Strengths
- Eurozone data are improving and inflation remains sticky; Canadian inflation momentum is softer, reducing the urgency for Bank of Canada hikes.
- Weaknesses
- Canada's labor market has shown signs of recovery.
- Comparison
- Maintain a medium-conviction long, with 3/5 conviction.
- Risks
- Unexpected strengthening in Canadian inflation, a hawkish Bank of Canada shift, or renewed deterioration in eurozone growth.
- NOK/SEKWatchlist short Norwegian krone, long Swedish krona
- Strengths
- Norwegian and Swedish inflation momentum has reversed, rate differentials are narrowing, and Norges Bank FX sales may slow.
- Weaknesses
- Oil prices remain the primary driver of this cross.
- Comparison
- Watchlist only, with 2/5 conviction; entry threshold has not yet been reached.
- Risks
- Escalation of the US-Iran conflict pushing up oil prices, or Norges Bank remaining hawkish.
Key data
- US Dollar Index performanceDXY fell nearly 1% from 2026-07-17 to 2026-08-14Most of the decline was concentrated between July 29 and 31.
- USD/CNH strategyShort, conviction 4/5, target 6.55Target implies approximately 3.0% return by end-October.
- SGD/IDR strategyLong, conviction 4/5, target 14,460Target implies approximately 4% return by end-October.
- EUR/JPY strategyLong, entry 183.90, target 190, stop-loss 181Conviction raised from 2/5 to 3/5; target implies approximately 3.3% return by end-September.
- USD/THB strategyShort, conviction 3/5, target 32.0, stop-loss 33.9Conviction lowered from 4/5; target implies approximately 4% return by end-September.
- China 10-year government bond yieldApproximately 1.68%The report states that liquidity is relatively ample, with strong demand for 10-year and 30-year government bonds.
- Singapore 2026 GDP forecast4.5%-5.5%Singapore's Ministry of Trade and Industry raised its forecast range; Nomura's economics team forecasts 5.7%.
Impact & implications
If US data continue to weaken and expectations for Fed hikes fade further, the USD may remain soft, benefiting CNH, SGD, and selected non-USD crosses. Conversely, if US equities continue attracting foreign capital, oil prices rise, or Middle East conflict escalates, the USD and certain energy-sensitive currencies may gain support. In Asian rates, the report favors receiving opportunities in Korea's intermediate-to-long end and remains focused on China government bond curve flattening and relative value in Singapore and Hong Kong rates.
Risks
- Foreign inflows into US equities remain strong, supporting the USD.
- Escalation in the Strait of Hormuz and US-Iran situation pushes up energy prices.
- Fed policy and central bank-independence-related news trigger sharp two-way USD volatility.
- Further FX intervention by Japan or other countries.
- FX and liquidity operations by central banks in China, Thailand, Indonesia, and elsewhere alter FX paths.
- Inflation, employment, and growth data across countries deviate from expectations, leading to repricing of rates.
What to watch
- Minutes of the July FOMC meeting released on August 20, particularly the inflation outlook and dissents.
- Japan's nationwide CPI data on August 21 and expectations for a Bank of Japan hike at its September meeting.
- US equity flows, US economic data, and changes in Fed hike pricing.
- The US-Iran situation, transit through the Strait of Hormuz, and international oil prices.
- China's July bank client-related cross-border receipts and payments and the RMB central parity trend.
- Bank Indonesia's August 19 policy decision and progress on the nomination of a new central bank governor.
- Thailand's second-quarter GDP, tourism data, and the effect of oil prices on the balance of payments.
- South Korea's 10-year government bond auction and long-term yield performance.