In the wake of the US CPI print and leading into the FOMC meeting, the desk suggests that certain currencies could demonstrate resilience amid a Fed hiking cycle. Per the full note from J.P. Morgan, notable resilience can be observed in currencies tied to robust economic fundamentals, while weaker currencies may struggle in the tightening environment. Currently, there is no significant calendar catalyst altering the immediate sentiment in the FX space.
What the desk is arguing
The desk asserts that currencies backed by strong economic fundamentals, particularly those with supportive yield spreads, are likely to navigate the anticipated Fed hiking cycle more effectively. Per the full note, the focus on currencies' resilience underscores market sentiment that some will outperform others during monetary tightening.
Supporting this view, J.P. Morgan emphasizes resilience linked to currencies like the AUD and NZD, as global commodity demand provides them with an edge. These currencies' performance is supported by their positive correlations with interest rate expectations and commodity prices, which may provide safe havens in a tightening Fed cycle.
Where it sits in our coverage
Our consensus target for the AUD/USD pair stands at 1.075, with a range between 1.04 and 1.12. Specific targets are as follows:
This view from the desk aligns closely with the jpmorgan stance as they forecast a stronger trajectory for the AUD, placing it at the higher end of our consensus spread.
How other firms see it
Firms such as jpmorgan remain aligned with this optimistic perspective on resilient currencies, while bofa takes a more cautious stance, predicting a potential pullback for the AUD. Such contrasting views highlight a division regarding economic outlooks and interest rate navigation.
The upcoming trajectory of the AUD/USD can be influenced by broader economic factors and commodity price movements, particularly in the context of the US interest rates and FOMC policies, making monitoring these indicators crucial.
What the calendar says
There are no immediate events on the calendar that will impact the FX markets significantly in the next 30 days. This suggests that traders should focus more on economic indicators and central bank communications to gauge market sentiment going forward.
01The desk identifies resilient currencies as key players during a Fed hiking cycle.
02Strong economic fundamentals will support the performance of the AUD and NZD.
03The current consensus target for AUD/USD is set at 1.075, with a potential range of 1.04 to 1.12.
04Diverging views across firms signal varying outlooks on currency resilience.
Market implications
Traders should closely watch the AUD/USD pair, particularly in light of global commodity price movements. Anticipated strength in this pair could test resistance levels around 1.075, reflecting underlying economic fundamentals.
Risks to this view
A sudden shift in US economic data or a more aggressive Fed stance than anticipated could lead to sharp reversals in current currency trends, impacting resilient currencies adversely.
Hello and welcome to JPMorgan's At Any Rate podcast. I'm Meera Chandan, Co-Head of FX Strategy at JPMorgan. Joined today by my two colleagues, Patrick Locke and Octavia Pesky from G10 FX Strategy and then Aneshka Kristevova from EMFX Strategy.
Aneshka, we did get a special request for you today, so I'm glad you could join. But look, we've had an eventful week and if I sound a bit downbeat, it's for a good reason. I think we've had a load of developments in the past couple of weeks.
The Jackson Hole hawkish delivery, you know, from Chair Warsh. We had the hot payrolls print and then we've had the hot CPI print today. We've got energy prices at the highs and the dollar just won't strengthen.
And you know, for dollar bulls such as ourselves, that's quite a frustrating thing. But it's also kind of interesting in the sense that it's leading to a lot of introspection on our side. Part of what we've been talking about in the debate corner, if so much is priced in already for the Fed and rates markets, and if all central banks are hiking and growth is good everywhere, does the dollar really deserve to strengthen?
And now that it's all in the price, you know, and the dollar still hasn't been rewarded, we've been making the argument that valuations are cheap, then what is it really going to take for the dollar to strengthen here? It's been quite a conundrum in our mind, to be honest. So yeah, we are obviously sticking, well, we are sticking with the constructive stance on the dollar, particularly going into the FOMC next week.
And what I want to focus a bit on today for the topics are really what are the currencies that can withstand a Fed hiking cycle? I think we've got north of three hikes, almost four now priced in for the Fed. What are the currencies that can actually withstand it?
But before we do that, Pat, maybe we can get a rundown from you on the CPI and what the outlook is for the Fed next week. Yeah, thanks, Meera. So some important developments, obviously, over the course of the last week, going back to NFT, which was pretty holistically strong.
But going back to the worst Jackson Hole comments, he did kind of suggest that inflation really is the problem right now. So we knew coming into this week that CPI was ultimately going to be kind of the determinant probably of what we get next week. You know, PPI was solid-ish.
And then CPI today ended up beating on the core by a tick, looked at 29 basis points. Super core came in hot at like 51 basis points. That was the hottest since January.
So there's definitely some upward pressure on kind of the core services block, even though kind of like Brent and things like that, we're actually on the soft side. So, yeah, I mean, it looks increasingly like next week is very much a possibility. As you kind of note, though, I think the conundrum for the dollar is that it's more than it's more than a possibility.
It's 90 percent price at this point. Yeah, exactly. Right.
It's I don't know if I've ever seen the Fed not go when it's when it's that aggressively priced. But so what's it going to take, then, you know, really for the dollar? The knee-jerk response in after the 830 data was directionally consistent and probably the magnitude as well in terms of what you would normally expect.
But it's all all been given back the gap. You know, DXY had been tracking September FOMC pricing quite closely for some time. But even that's lagging now.
So there's there's obviously a chasm here. And it's not entirely clear to me that even if they do deliver, which is basically just validating the pricing next week, that that necessarily will force the dollar to correct higher. So looking ahead to kind of a skew of risks, you know, I'd still like to think that if they deliver and if there's a sufficiently hawkish message that can, you know, take up terminal a little bit higher, dollars should still continue to get some kind of like traditional fundamental support in addition to the valuation tailwind.
But, you know, on the other hand, the 22 basis points now priced does set a bit of set up a bit of kind of asymmetry in terms of a larger kind of like downside tail. If they just kind of like under deliver in terms of hawkishness, you know, even if they do hike, if they just take lesser of a tone. So I think, yeah, I agree with you in terms of just kind of framing it for the dollar hasn't done a lot, despite a lot of good things being thrown at it.
And now with 22 basis points, it gets harder, I think, in the next week. Yeah. And we have a couple other important central bank meetings next week, isn't it, that that tactically we think should be relevant for markets, because the Fed, you know, obviously constructive on the dollar going into it.
We've got the BOE. I think Sterling has a window of opportunity here to actually do pretty well next week as well. You know, one of the high yielders tends to be more insulated against against rising U.S. yields.
You've got the BOJ, which should be interesting. You know, yen is certainly one of the move and we've been tactically constructive on that. You know, but but again, we are getting to the point now where where, you know, we need to see some some actual delivery policy delivery here.
So, you know, depending on what the levels are going into next week, you know, there could be a risk of disappointment here as well. But for what it's worth, you know, for all three of those currencies with the central bank meetings next week, whether it is sterling, the dollar or yen, we are actually tactically tactically fairly constructive going into it. But let me let me move on now to, you know, sort of the main topic, which is, you know, what are the currencies that should be insulated against what looks like is going to be a Fed hiking cycle?
So, I mean, I can kick off with the euro and then maybe, Octavia, I can hand over to you for some of the other European currencies. But on the euro, look, we had the ECB. It was hawkish.
But, you know, obviously that was sabotaged to a large extent by the rise in energy prices. The growth story in Europe has been fairly strong. But at the end of the day, if I look at a global ranking, the euro is still fairly, you know, sort of lower end of the spectrum.
It's absolutely not at the absolute lows, but certainly on the on the lower end of the range, a spectrum as far as sky is concerned. So it's a low yielder. I'm not particularly optimistic about the currency.
It's really hard to be, despite growth holding up so well, you've got a lot you've got a lot to contend with. I mean, the biggest vulnerability is energy prices, given its importer status. And the second thing is that there have been political developments and some noise around budgets and in different countries as well.
So, you know, and of course, the latest German state election. So it's hard to be constructive over the medium term on that. So to me, I still prefer to use it as a funder.
Obviously, we've been preferring preferring some other lower, you know, yielding candidates in the euro block as a proxy for that stock is one such example. But I would say that my expectation is that euro dollar should be should be lower here. But now I've been saying that for a while, so I sound like a broken record.
So acknowledging that completely. But Octavia, maybe we can turn to you within the Euro block. What do you think are the most insulated currencies in your space to Fed hikes?
Hey, Mira, yeah, our views on the euro block and more broadly have been pretty consistent with the Fed having a hiking bias. So the most insulated one on a hike would be Nokia and Sterling. That'd be the one we'd expect to outperform, considering the rest of the low yielders would be hit more.
And then that also means that tactically on a Fed skip, it would be stocky and Swiss that would get to benefit. But I'd make four points more broadly on on those currencies. The first is that on stocky, we've been bearish with high conviction due to the global yield and carry environment.
We're conscious of the better domestic data and cheap valuations on some metrics. But we've been downplaying these due to stocky sensitivity to U.S. yields. And that's still very much the case.
Second, on the other hand, we're structurally bullish Nokia. We think it's a turnaround story as it's undergoing a structural shift, being a high yielder now with the G10, which means two things. Most of all, firstly, that a premium to fair value is justified because historically high carry has resulted in Nokia trading rich and the converse has been true when it's been a low yielder and was cheap at the time.
And the second is that it's become less sensitive to energy price declines than it done back when it was a low yielder. As you know, it's harder to short a high yielder when energy goes down. I'm sure it's still a near-term risk, but that would, if anything, provide an opportunity for Nokia.
So we still think Nokia can strengthen further from here. You know, it has solid carry, the terms of trade support, the strong fiscal position. Stocky also has that strong fiscal position, but it's really the relative yield that stands them apart here.
And then my third point is that on Swedish we still remain bearish. It's the lowest yielder of them all and pressured both by yields and then also by better European growth there. And lastly, on Sterling, so like you mentioned, it's a high yielder and then also an oil importer within G10.
But it's more insulated than other importers in the euro block because of its higher yield. And even though medium term we may have the focus on fiscal pickup around the October budget, into the BOE we do think risks are tactically bullish given the strong data and that it's been running above BOE forecasts into the meeting. And it's a high yielder within G10, so it should net benefit relative to a currency like euro and stocky from this kind of environment and be one of the most resilient to high Fed yields.
OK, thanks a lot, Octavia, for that. And that's fairly consistent, I think, with our broader view in DiEM, you know, within the other high beta currency as well. So for example, Aussie is the other high yielder that's been one of our, you know, favored sort of expressions of this carry theme.
And it's got the right way in terms of trade exposure. We've actually, our economists have just penciled in another hike for the RBA. So now it's going to yield 4.6 percent.
Actually the market is pricing in more than that. And so the gap in yields between the DiEM high yielders like Aussie and Nokia, both of which have pretty decent fiscal positions and are both commodity exporters versus the low yielders like Swiss franc, for example, or even yen, even though, you know, we are constructive and yen. I mean, the gap is just sort of continuing to grow pretty solidly.
So those are still pretty good, pretty good candidates in our view. And of course, Patrick's been pointing out that CAD uses the funder both within the DiEM space, but also, you know, also versus EM, LATAM, MEX, for example, has been a pretty interesting pairing there as well. And that's something that we've been working on with our EM strategists as well.
But speaking of EM, Anushka, maybe I should turn it to you. Obviously, you know, this move in rates is obviously been something that's stealing the show, the move in commodities and FX, at least in my mind, has been a bit of a sideshow in comparison to the magnitude of these moves. What are you thinking from here and which currencies do you think are the best candidates to consider that might be insulated from this bad hiking cycle?
Yeah, so FX has been a little bit of a sideshow, but actually a very interesting sideshow, because when we look at GBIEM returns, which is our main index for local markets, FX gains have actually been sufficient enough to make the overall index in positive numbers despite the bond sell-offs, which I think it's quite remarkable. When you talk to the start of, you know, dollar not gaining on the recent developments, well, we have been bullish EMFX, we have been constructive, but even, and it's actually also surprising how well EMFX has done considering the challenges. So even approaching it from a bullish perspective, I must say I'm a little bit surprised by the resilience we are seeing.
From the start of July, all the usual drivers that we would monitor for EM, US real yields, oil prices, not gas prices, all have been challenging, and yet the GBIEM FX total return has been very decent over the summer and even very recently. So I think the resilience has come through. We have expected it, but I think even compared to the expectations, it's surprising a bit to the upside.
Now, in terms of what's most resilient to a Fed hike, obviously we would rank it from the currencies that have the highest carry protection. That would be very standard. So we have the usual candidates there on the immediate reaction.
Lira, for instance, should see absolutely no move. Colombian peso, Brazilian real, these are the usual kind of high carry candidates. I would also mention that several others clean in that category for other reasons.
So for instance, Mexico does not have very high carry, but we also see that the positioning continues to be quite low and the kind of fundamental BOP supports quite high. So I would put that in the resilient category too. In this region, another one that stands out to me is Hungarian foreign, where we are finally seeing signs that the central bank is a bit more concerned about the FX behavior.
We saw that on some of the higher, on the days of where a foreign was showing higher beta to not gas prices. It looks like it's starting to trigger some reaction function. And for that reason, I also think, although it does not have the highest carry out there, that the resilience should come through.
On the other hand, on the other end of the spectrum, two currencies for me stand out in LATAM and EMEA-EMF as having recently shown more sensitivity to the US rates repricing, and that is shekel and Chilean peso. In both cases, I would say we probably see further reaction if there is bulkish repricing. Having said that, you know, if there is so much price for the Fed, these could also be the ones that show highest beta to the opposite direction too.
Fair enough. And this is one good way to end it. I mean, I was talking to somebody else earlier this week who happens to be a dollar bear.
And of course, I've been on the more dollar bullish camp, and the net result has been that neither of us are actually happy here. So that tells you everything you need to know on the dollar, but the carry is certainly one thing that I think continues to deliver. And if anything, this higher inflation, high growth environment is something that sort of keeps that in play for the foreseeable future.
So we will stop there. Take a look at our publication for more details. This communication is provided for information purposes only.
Please refer to J.P. Morgan Research Reports related to its content for more information, including important disclosures. 2026 J.P. Morgan Chase & Company.
All rights reserved. This episode was recorded on September 11, 2026.