The market is underplaying the impact of the Reserve Bank of New Zealand easing mortgage restrictions. This move could make existing interest rates more stimulatory, potentially leading to stronger growth and an upward repricing of rates, providing overlooked support for the Kiwi currency.
Officials at IMF meetings expressed surprise at how little the Trump administration has focused on foreign exchange rates. There is a growing expectation that this could change next year, with a renewed focus on the dollar if the US trade deficit fails to normalize, creating a latent political risk.
Contrary to typical risk-off behavior, a financial shock originating in the US would likely be positive for the EUR/USD exchange rate. This is because it creates more room for the US Federal Reserve to reprice its policy downwards and can trigger repatriation flows out of US equities.
A key tension exists for Asian FX. China's central bank is keeping the Yuan stable, providing an anchor for the region. Simultaneously, weak Chinese stocks are driving negative risk sentiment. This forces regional currencies into a difficult choice of which signal to follow, leading to uncertainty.
The bullish case for the Euro is weakening as growth signals outside the U.S. lose intensity. Critically, all of J.P. Morgan's developed market economic activity surprise indices have now fallen into negative territory, posing a significant challenge to the Euro's cyclical strength against the dollar.