October saw a significant rotation in currency performance. European and commodity-linked currencies recovered from September’s weakness, with EUR and NZD underperforming in each bloc. Asian currencies remained divided, with most Northeast Asian currencies holding up better than their Southeast Asian peers.
European currencies: CHF resilience contrasted with EUR weakness in October. The CHF benefitted from renewed haven demand driven by geopolitical tensions and fiscal concerns, while EUR struggled to shake off France’s fiscal turmoil and social unrest. However, EUR stabilized over the past week as the DXY Index failed to sustain a break above 102, despite higher-than-expected US inflation and GDP data, against a background of AI-related equity market weakness. The European Central Bank also provided clearer guidance than the Fed on the prospects of a December rate hike, despite both central banks leaving rates unchanged this week. Moody’s reaffirmation of France’s Aa3 sovereign debt rating and the ECB’s reminder that it has the tools to counter unwarranted market fragmentation helped contain concerns over spillovers from France’s turmoil. Meanwhile, GBP recovered as the UK Autumn Budget reassured investors over fiscal discipline without unsettling the gilt markets. In turn, this gave the Bank of England greater room to focus on persistent inflation, opening the door for a rate hike at next week’s meeting.
Commodity currencies: In October, CAD and AUD reversed September’s losses. USD/CAD fell below 1.40 after the Bank of Canada delivered the expected 25-bps hike to 2.50% and provided guidance for further tightening. AUD/USD recovered above 0.70 after the Reserve Bank of Australia fuelled expectations for a rate hike next week. NZD gave back gains after the Reserve Bank of New Zealand left rates unchanged, bucking expectations of a hike.
Northeast Asian currencies: KRW outperformance contrasts with TWD weakness. The KRW retained its lead, supported by the Bank of Korea’s hawkish hold, while TWD remained a notable laggard. This divergence underscored the growing influence of country-specific capital flows over the usual uniform technology-cycle narrative. However, further KRW gains could encounter resistance from South Korean policymakers who are uncomfortable with the currency near its strongest levels this year. Conversely, Taiwanese authorities may step up scrutiny of the TWD near this year’s weakest levels. Meanwhile, the CNY resumed its gradual appreciation, with USD/CNY breaking below 6.70. The move followed an extended trade truce with the US, even as trade tensions with the EU persisted over the perceived undervaluation of the CNY. Today’s Bank of Japan meeting could lift the JPY if it provides clearer guidance on a December hike.
Southeast Asian currencies: PHP and IDR remained under pressure. USD/PHP briefly hit a fresh record high slightly above 64 despite the Bangko Sentral ng Pilipinas’ 50-bps rate hike, underscoring the limits of monetary tightening in addressing stagflation-driven depreciation. USD/IDR hovered near its yearly high of 18,200 amid portfolio outflows following MSCI’s proposal to downgrade Indonesia from “emerging-market” to “standalone-market” status. In contrast, VND strengthened to its highest level this year, with USD/VND breaking below its previous support level at 25900 and approaching 25800. The appreciation reflected tighter domestic liquidity following its withdrawal in early October, alongside healthy trade surpluses and steady FDI disbursements.
Meanwhile, USD/SGD remained confined in a tight 1.2760-1.2870 range, reflecting the offsetting movements among currencies in the SGD NEER basket. Similarly, USD/MYR traded within a narrow 4.0780-4.0920 range before breaking lower to 4.0590 after the FOMC meeting. The MYR’s movement may reflect a reassessment of USD strength, driven by the Fed’s tempered tightening bias and the prospect of a Democratic sweep in the November 3 US midterm elections.
Quote of the Day
“The ballot is stronger than the bullet.”
Abraham Lincoln
Today in history
A radio broadcast of H. G. Wells' "The War of the Worlds" narrated by Orson Welles, allegedly causes mass panic on October 30, 1938.
Topic
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