Goldman with a useful take on DXY and AUD.
USD: Still on track. The headline August payrolls number was somewhat firmer than expected, but there were offsetting downward revisions to prior months and an encouraging further increase in participation. Taken together with the JOLTS and PCE inflation releases earlier in the week, the overall slate of data this week likely constitutes enough evidence of progress towards disinflation and labor market rebalancing to keep the FOMC on hold in September. Still-elevated wage growth should keep the debate on the need for further tightening beyond September alive, but after a pivotal week, our ‘Shallow Dollar Depreciation’ view remains on track, with the path from now to year-end likely being more of the same, differentiated Dollar performance seen YTD in FX markets (Exhibit 1). Our baseline macro forecasts of i) lower rate vol on a“careful” Fed, ii) solid but slowing US growth, and iii) supportive risk sentiment continue to argue for a weaker Dollar backdrop against more pro-cyclical FX. At the same time, risks look skewed towards more sustained Dollar strength than most appreciate—especially against some of the major ‘Challenger’ currencies, including JPY and CNY. The Euro, in particular, now looks like the fulcrum for FX markets through year-end; if growth in the Euro area looks less resilient than our current expectations and China concerns persist, we would see greater upside for the broad Dollar, which may limit the upside for cyclical currencies. But if growth remains low but positive, as our economists expect, our year-end EUR/USD target of 1.10 (and our view of further support for cyclical FX) should remain intact. For that reason, we prefer relative value opportunities across G10 and EM on a tactical horizon, including short EUR/CAD, long BRL and COP vsCNY, and short TWD/KRW. We also think cross-JPY still has room to go higher—in particular, CHF/JPY and GBP/JPY—based on our view of more persistent but gradual JPY depreciation, despite being at already stretched levels.
AUD will follow CNY and EUR. In my opinion, down, as both economies keep sliding into 2024.