Currency outlook: Strong global growth drives central bank policy convergence

Invesco Fixed Income shares its views of currencies around the world

Currency outlook: Strong global growth drives central bank policy convergence

US dollar:

Our expectation for strong global economic growth suggests that the performance of the US dollar should be mixed. Strong global growth implies that non-US growth should be accelerating. In our view, this means that foreign central bank policy is likely to converge toward that of the US Federal Reserve, creating an environment in which the US dollar underperforms currencies of countries experiencing an economic resurgence.


We believe there is room for further euro appreciation. The fundamental backdrop in the region continues to be supportive of a stronger euro, in our view. In general, we believe that the US dollar cycle has reached its zenith due to global growth convergence, and that European Central Bank (ECB) policy adjustments going forward are likely to be skewed toward supporting longer-term euro strength as political risks recede.


We expect a relatively strong performance from the CNY (onshore) and CNH (offshore) currency pair in the weeks ahead with softness in the US dollar expected to add support. The gradual pace of renminbi internationalization and capital account opening emphasized by President Xi in the National Financial Work Conference suggests continued capital controls for the foreseeable future. We expect the renminbi/US dollar exchange rate to remain fairly stable, trading in a range of 6.80-6.99 in the second half of 2017. The direction within this range is subject to US dollar strength.

Japanese yen:

We expect the yen to be more influenced by non-domestic drivers in the near term. If global central banks do not tighten policy by as much as is currently anticipated, this could be a catalyst to support the yen. We expect the yen to trade against the US dollar in a range of 110-115, but with yen positioning at its most underweight in a year, it may trade toward the lower end of that range in the month ahead.

British pound sterling:

Our longer-term view on sterling remains optimistic, based on our expectations of how the Brexit discussions will conclude (either a soft Brexit or with the UK remaining in the EU). It has been interesting to see sterling strengthen quite meaningfully against the US dollar this year as the probability of a hard Brexit has receded. The headwinds to our longer-term view are likely to come in the form of fractious Brexit discussions (pointing to an increased possibility of “no deal”) or the new minority government overly loosening the purse strings to ward off the threat of losing power before the year is out (causing an increased budget deficit).

Canadian dollar:

The Canadian dollar has been in a slow decline over the last year. While the Bank of Canada increased the benchmark interest rate, as expected, by 0.25% (to 0.75%) at its July meeting, oil prices appear to have peaked for the year due to increased US oil production, presenting a headwind for the currency.1 We are neutral on the Canadian dollar, and concerns about overleveraged Canadian consumers leave us looking for opportunities to short the currency.

Australian dollar:

The Reserve Bank of Australia (RBA) held its benchmark interest rate steady at 1.50% as expected at its July meeting.2 The statement was neutral overall and acknowledged the economic weakness in the first quarter. The RBA continues to be concerned with the housing market, and that concern, combined with stubbornly low inflation, should keep it on hold with a target rate of 1.50% for the foreseeable future. We remain neutral on the Australian dollar.

Ray Uy, Head of Macro Research and Currency Portfolio Management, James Ong, Senior Macro Strategist, Brian Schneider, Head of North American Rates, Scott Case, Portfolio Manager, Sean Connery, Portfolio Manager, Yi Hu, Senior Credit Analyst, Ken Hu, CIO Asia Pacific, Alex Schwiersch, Portfolio Manager

1 Bank of Canada, July 12, 2017.

2 Reserve Bank of Australia, July 4, 2017.

Important information

Blog header image: Bradley D. Saum/

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The dollar value of foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.

Ray Uy, CFA

Head of Macro Research and Currency Portfolio Management

Raymund Uy is Head of Macro Research and Currency Portfolio Management for Invesco Fixed Income.

Mr. Uy has been in the industry since 1993. He has experience in a variety of functions, including global fixed income trading and portfolio management; currency trading and portfolio management; credit research and macroeconomic analysis.

Mr. Uy worked at Hartford Investment Management (HIMCO) for eight years prior to joining Invesco in 2012. At HIMCO, he was a lead portfolio manager for non-US-dollar-based fixed income portfolios, and as head of Fixed Income Trading, he managed a centralized platform of traders across multiple fixed income sectors. Before joining HIMCO, Mr. Uy spent six years at Mackay Shields in New York and five years at Fiduciary Trust.

He earned a BBA from Hofstra University in New York, and is a CFA charterholder.

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