FX Mid-Year Outlook: Ten questions (and answers) on currencies in 2H26

Research evidence excerpt

FX Mid-Year Outlook: Ten questions (and answers) on currencies in 2H26

ata. Baseline is ~3% strength in the broad index. policy message, meaning GBP weakness comes quicker. Either scenario leads to

estimates.

relative large moves, which favours owning GBP volatility. As the autumn budget

approaches, if Burnham is PM then fiscal risk premium in GBP should expand.

NZD.Neutral; Top down bearish due to yield deficit, even though domestic JPY. Staying bearish. (4Q'26 164). Given that we expect the global monetary policy cycle, Japan’s

story is turning and is moderately constructive (4Q'26 0.61, 2Q'27 0.60). domestic policy mix, and an improvement in risk sentiment alongside a pickup in carry trades following a

AUD. Domestic catalysts running of steam making this a beta/ carry beneficiary (4Q'26 and

Recovering growth and immigration/capital inflows, alongside a material RBNZ calming of Middle East tensions to all weigh negatively on the JPY, we forecast USD/JPY to rise above

2Q'27 0.69). Domestically, a weaker economy and housing market, fading rate differentials and energy

hiking cycle can become sources of support over time. NZD’s loss of momentum in the cycle high of 162 in 2H26. If the uptrend accelerates, the MoF will likely conduct another round of

terms of trade factor The drivers of AUD’s first half breakout are waning into 2H with the RBA sidelined,

2Q reflected Fed repricing, energy vulnerabilities and RBNZ gradualism. Those intervention, but with the size capped near the late-April/May total (about JPY 12trn), limiting the overall

while RoW central banks are poised to catch up. Interest rate sensitive sectors have deteriorated and

headwinds appear less intense in 2H, with the first hike brought forward to July. In impact.