Intro
Despite my bearish sentiment toward the kiwi, it was the strongest of the majors last week (followed by AUD, CAD, and EUR). However, this was against the yen and British pound, both of which have neutral outlooks.
This week should be as eventful (if not more), with three interest rate decisions, where some 25 bps cuts are possible.
Let’s explore this and more in our latest sentiment this week.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Bearish
The Fed cut rates by 25 bps last month and signalled that further cuts are on the table as labour conditions soften. U.S. payroll growth has cooled, and unemployment has pushed up to around 4.3%. The Fed itself acknowledged that “job gains have slowed” and that growth has “moderated,” even while inflation remains sticky in the high-2s/low-3s.
All these factors keep the structural bias negative for the dollar unless we get a shock flight-to-safety bid.
Euro (EUR): Bullish
The ECB has now held the deposit rate at 2.00% consecutively and is openly describing policy as “appropriate,” not urgent to cut. This aligns with expectations of a rate hold this coming Thursday.
Recent projections still see euro area inflation averaging about 2.1% in 2025, with core inflation drifting lower, and growth revised up to roughly 1.2% in 2025 from 0.9%. This implies the bloc is stabilising rather than stalling.
With the Fed already easing and the ECB signalling patience, rate differentials are starting to lean in favour of the euro on dips.
Key news to watch: interest rate decision on Thursday
British Pound (GBP): Neutral
The Bank of England held its interest rate at 4.00% in September by a 7–2 vote, effectively saying: ‘we’ll ease, but not recklessly.’ UK inflation is still uncomfortable with August CPI near 3.8% y/y, and services inflation remains sticky. So, Governor Bailey and co. are in no rush to slash again, even as growth is soft.
That mix (high-but-slowing inflation, shallow growth, cautious BoE) tends to cage GBP in the middle.
Key news to watch: inflation rate on Wednesday
Japanese Yen (JPY): Neutral
Japan’s core CPI is still running above the BoJ’s 2% target, and the BoJ has openly lifted its inflation forecasts toward ~2.7% for FY25/26. Markets are now treating each BoJ meeting as “live”: talk of eventual follow-up tightening hasn’t gone away, especially with services inflation still elevated.
If the Fed keeps cutting while the BoJ edges (even slowly) toward more normalisation, U.S.–Japan rate spreads compress. That’s supportive for the yen from historically weak levels.
Key news to watch: interest rate decision on Thursday
Australian dollar (AUD): Neutral
The RBA has already eased this year, signalling data-dependence rather than a hard dovish run. Australia’s domestic story is mixed: unemployment has drifted higher and activity is cooling, but monthlies show inflation re-flickering around the 3% handle.
Added with China/commodities risk, the Aussie is unlikely to see a bullish trend without a real global growth upswing.
New Zealand dollar (NZD): Bearish
New Zealand’s central bank surprised markets with a 50 bps cut recently and said more easing is possible as growth slows and unemployment rises. Markets are now pricing the cash rate drifting toward the low 3s/high 2s over the coming months.
That leaves the kiwi as one of the more clearly “policy-soft” stories in G8 FX. Exports (dairy, agri) cushion downside, but the domestic policy path is outright dovish, which leans NZD slightly lower absent a big global risk-on.
Canadian dollar (CAD): Neutral
The Bank of Canada has already moved into easing mode in response to softer growth, job losses, and inflation sliding toward ~2% y/y.
Two offsets: (1) oil is no longer screaming higher, which limits CAD’s traditional commodity tailwind, but (2) the Fed is also easing, which removes some USD/CAD upside pressure.
However, the expectation is for a cut this coming Wednesday, which may change my sentiment to bearish.
Key news to watch: interest rate decision on Wednesday
Swiss Franc (CHF): Bullish
The SNB is sitting at 0% after a series of cuts, and Swiss inflation is extremely low (roughly ~0.2% y/y). At the September review, the SNB essentially said: we’ll keep policy easy, but we’re absolutely still willing to lean on FX if needed.
In practice, CHF remains structurally well bid because Switzerland offers ultra-low inflation and safe-haven appeal. The only caveat is that the SNB will smooth violent spikes via sight-deposit/FX operations, so bullish doesn’t mean runaway.
