Australian Dollar and Swedish Krona Stand Out in G10 Currency Outlook

The latest G10 currency strategy update from Morgan Stanley highlights a narrowing field of conviction calls, with only the Australian Dollar and Swedish Krona receiving clear bullish ratings. The bank's scorecard, which assesses both the overall view and directional skew for each major currency, reflects a cautious environment shaped by central bank pauses and shifting risk appetite.

According to the report, the US Dollar is now rated neutral with a bearish skew. Morgan Stanley notes that while recent data suggest further Federal Reserve rate hikes are unlikely, a more pronounced decline in the Dollar may depend on a clear dovish signal at the September Federal Open Market Committee (FOMC) meeting. The Euro, meanwhile, is also rated neutral but with a bullish skew, benefiting from anticipated Dollar weakness. However, the bank warns that aggressive European Central Bank pricing and rising election-related risk premiums could make the Euro an attractive funding currency in cross trades.

Mixed Prospects for Major Currencies

The Japanese Yen, Pound Sterling, and US Dollar all share a neutral view with a bearish skew. For the Yen, Morgan Stanley points to market expectations of a sharper Bank of Japan rate hiking cycle, but suggests that strong global risk sentiment and high US terminal rate pricing could push USD/JPY higher, even as US inflation data remains modest. The Pound is expected to lag in the medium term, with the bank anticipating a dovish pivot from the Bank of England. However, the relatively high yield on Sterling may offer some support against lower-yielding peers in the short run.

Elsewhere, the Swiss Franc, Canadian Dollar, Norwegian Krone, and Euro are all rated neutral, but each carries a bullish skew. The Swiss Franc's outlook has shifted to neutral after a period of low volatility and softer inflation data, with intervention risk from the Swiss National Bank also noted. For the Canadian Dollar, the outcome of a looming US tariff deadline is seen as a key driver: a deal could lift the currency, while failure to reach an agreement may see USD/CAD approach 1.41. The Norwegian Krone is supported by its high yield and energy exposure, though long positioning and stable energy prices present risks.

Australian and Swedish Currencies Lead

The Australian Dollar stands out as the strongest conviction call in the scorecard, with both the view and skew rated bullish. Morgan Stanley cites the Reserve Bank of Australia's hawkish tone in August, combined with high carry, low implied volatility, and firm risk appetite, as reasons to expect AUD/USD to reach 0.75 in the coming quarters. This assessment contrasts with the more cautious market reaction following the RBA's unanimous decision to hold rates steady in August.

The Swedish Krona is also rated bullish on both counts, described as the "cleanest and best expression of a cyclical global growth rotation." With market positioning below the 30th percentile, Morgan Stanley sees room for a downside surprise in EUR/SEK, suggesting the Krona could outperform if global growth expectations improve. The New Zealand Dollar, by contrast, is rated neutral with no clear skew, as inflation expectations have cooled and unemployment has risen, leaving risks tilted lower ahead of upcoming spending data.

Key Data and Market Events Ahead

Across the G10, Morgan Stanley identifies carry and risk appetite as the main drivers of currency performance while central banks remain on hold. The September FOMC meeting is highlighted as a potential turning point that could reshape the outlook for the US Dollar and, by extension, other major currencies. For readers tracking the interplay between the Pound and Australian Dollar, recent developments in the GBP/AUD exchange rate and the impact of upcoming Australian jobs and wage data are explored in detail in this related analysis.

In terms of recent data, the Australian Dollar traded near 0.67 against the US Dollar in early August, having recovered from lows below 0.65 in July. The Swedish Krona, meanwhile, strengthened to around 11.30 per Euro, up from levels above 11.70 earlier in the summer. These moves reflect shifting expectations for central bank policy and global risk sentiment, with market participants closely watching upcoming policy meetings and economic releases for further direction.

Central bank pauses can shift the focus of currency markets from policy divergence to other factors such as carry, risk appetite, and relative growth prospects. In this environment, currencies with higher yields or exposure to global growth themes-such as the Australian Dollar and Swedish Krona-may attract renewed interest. However, these dynamics can change quickly if central banks adjust their guidance or if global risk sentiment deteriorates, underscoring the importance of monitoring both policy signals and market positioning.