THE ETERNAL SOVEREIGN

Tag: USD

  • Australian dollar steady after China services PMI release

    • The Australian dollar strengthened after the Composite PMI surged to 55.7 in January, marking the fastest pace of expansion in nearly four years.
    • The Aussie also benefited as markets priced in an 80% probability of an interest rate hike in May, along with around 40 basis points of additional policy tightening.
    • Meanwhile, the U.S. dollar remained subdued for a second straight session.

    The Australian dollar strengthened against the U.S. dollar on Wednesday, extending gains of more than 1% from the previous session. The AUD/USD pair held firm after China’s Services Purchasing Managers’ Index (PMI) rose to 52.3 in January from 52.0 in December, beating market expectations of 51.8. As China is Australia’s largest trading partner, improvements in Chinese economic activity tend to support the Aussie.

    The AUD also drew support from upbeat domestic PMI data. Seasonally adjusted figures from S&P Global showed Australia’s Composite PMI climbed to 55.7 in January from 51.0 in December, marking the strongest expansion in 45 months. The Services PMI jumped to 56.3 from 51.1, its highest reading since February 2022, exceeding the flash estimate of 56.0 and remaining well above the 50.0 threshold. This extended the run of expansion in services activity to two years.

    The Reserve Bank of Australia raised its Official Cash Rate by 25 basis points to 3.85% on Tuesday, pointing to stronger-than-expected economic growth and persistently elevated inflation. As the tightening cycle gathers momentum, markets have increased the odds of another rate hike in May to around 80% and are now pricing in roughly 40 basis points of additional tightening through the rest of the year.

    Speaking at the post-meeting press conference, RBA Governor Michele Bullock said inflationary pressures remain uncomfortably high, warning that a return to the target range will take longer than previously expected and is no longer acceptable. She emphasized that the board will remain data-dependent and avoid providing forward guidance.

    U.S. dollar little changed after recent losses

    The U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, remained subdued for a second straight session, trading near 97.40 at the time of writing.

    Data released on Monday showed an unexpected rebound in U.S. manufacturing activity, underscoring economic resilience. The ISM Manufacturing PMI rose to 52.6 in January from 47.9 in December, comfortably beating expectations of 48.5.

    Markets have also been assessing President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair, a move widely interpreted as signaling a more disciplined and cautious approach to monetary easing. The dollar found some support earlier as risk sentiment improved after the U.S. Senate reached an agreement to advance a government funding package, averting a shutdown, according to Politico.

    Producer-side inflation in the U.S. remained firm, reinforcing the Fed’s policy stance. Headline PPI held steady at 3.0% year-over-year in December, unchanged from November and above expectations for a slowdown to 2.7%. Core PPI, which excludes food and energy, accelerated to 3.3% from 3.0%, defying forecasts for a decline to 2.9% and highlighting persistent upstream price pressures.

    Fed officials struck a cautious tone. St. Louis Fed President Alberto Musalem said additional rate cuts are not warranted at this stage, describing the current 3.50%–3.75% policy rate range as broadly neutral. Atlanta Fed President Raphael Bostic echoed this view, urging patience and arguing that policy should remain modestly restrictive.

    In Australia, inflation data showed mixed signals. The RBA’s trimmed mean inflation rose 0.2% month-over-month and 3.3% year-over-year, while the monthly CPI jumped 1.0% in December, exceeding forecasts of 0.7%. Export prices climbed 3.2% quarter-on-quarter in Q4 2025—the first increase in three quarters and the strongest gain in a year—while import prices rose 0.9%, beating expectations for a decline.

    China’s RatingDog Manufacturing PMI edged up to 50.3 in January from 50.1 in December, in line with expectations and marking the fastest pace of factory expansion since October.

    Additional Australian indicators pointed to easing inflation momentum and improving labor demand. The TD-MI Inflation Gauge rose 3.6% year-over-year in January, while monthly inflation increased just 0.2%, the weakest pace since August. Meanwhile, ANZ Job Advertisements surged 4.4% month-over-month in December, posting the strongest increase since February 2022 and signaling renewed momentum in hiring toward year-end.

    Australian dollar rebounds toward three-year highs near 0.7100

    The AUD/USD pair was trading near 0.7030 on Wednesday. Analysis of the daily chart shows the pair remains within an ascending channel, pointing to a sustained bullish bias. The 14-day Relative Strength Index (RSI) stands at 73.30, signaling strong upward momentum, though conditions appear increasingly stretched.

    AUD/USD recently rebounded toward 0.7094, its highest level since February 2023, reached on January 29. A decisive break above this resistance could open the way for a move toward the upper boundary of the ascending channel around 0.7210. On the downside, initial support is seen at the nine-day Exponential Moving Average (EMA) near 0.6964, which coincides with the channel’s lower boundary. A deeper pullback could bring the 50-day EMA at 0.6759 into focus.

    AUD/USD: Daily Chart

    Sources: Akhtar Faruqui

  • Forex Today: US Dollar surges, Gold tumbles amid focus on Trump’s Fed Chair choice

    Here is what you need to know on Friday, January 30:

    Markets were driven early Friday by the latest political and geopolitical developments linked to US President Donald Trump, as investors focused on the announcement of his pick for Federal Reserve Chair. Bloomberg reported that the Trump administration is preparing to nominate former Fed Governor Kevin Warsh for the role as early as Friday morning in the US.

    At the same time, the Wall Street Journal noted that President Trump and Senate Democrats have reached an agreement to avoid a government shutdown.

    Together with profit-taking and the Federal Reserve’s recent decision to keep interest rates unchanged, these developments helped revive demand for the US Dollar (USD), pushing it up from four-year lows against its major counterparts.

    Despite the rebound, the US Dollar remains on course for a second consecutive weekly decline, weighed down by concerns over President Trump’s unpredictable foreign policy stance and repeated challenges to the Federal Reserve’s independence.

    On Thursday, Trump threatened to levy a 50% tariff on all aircraft exported from Canada to the United States, accusing Ottawa of unfairly restricting the certification of Gulfstream business jets.

    Reuters also reported that Trump plans to hold talks with Iran, even as the Pentagon readies for potential military action and the US steps up its naval presence in the Middle East.

    In addition, the White House confirmed that Trump signed an executive order authorizing tariffs on countries that supply oil to Cuba.

    Looking ahead, market attention remains firmly on Trump’s nomination of the next Fed Chair, along with the upcoming US Producer Price Index (PPI) release, which could shape the Dollar’s next move.

    Before that, preliminary fourth-quarter 2025 GDP data from Germany and the Eurozone are expected to draw investor interest.

    In G10 currencies, AUD/USD remains under heavy pressure below the 0.7000 mark amid profit-taking ahead of a likely Reserve Bank of Australia (RBA) rate hike next week. USD/JPY hovers near 154.00, with the Japanese Yen staying weak after softer Tokyo CPI data reduced expectations for an early Bank of Japan (BoJ) rate increase.

    EUR/USD pares losses to reclaim the 1.1900 level, though downside risks persist ahead of key German and Eurozone GDP releases. GBP/USD continues to consolidate around 1.3750, weighed down by the ongoing recovery in the US Dollar.

    In commodities, Gold slides nearly 4% to trade around $5,200 in early European hours after briefly testing the $5,100 level during the Asian session. Meanwhile, WTI crude oil extends its retreat from five-month highs near $66.25, trading close to $64 as Trump signals openness to talks with Iran.

    Sources: Fxstreet

  • The US Dollar Could Gain Strength Following the Fed’s Turmoil

    Yesterday, the US CPI came in weaker than anticipated, supporting our prediction of a Fed rate cut in March. However, we expect the market to take a few more weeks before fully embracing this outlook. The US dollar could recover more than its recent losses, possibly driven by a hawkish stance following the Powell criminal investigation. In the meantime, we’ll continue to watch the Japanese yen closely today, along with developments in the Greenland discussions.

    USD: We Maintain a Short-Term Optimistic Outlook

    US inflation came in softer than consensus and well below our expected 0.4% month-on-month core reading. Yet, yesterday’s market reaction actually reinforced our short-term positive outlook on the dollar: despite the weak CPI data, Fed rate expectations barely shifted, and the dollar quickly regained strength.

    This may partly be due to market caution in over-interpreting the CPI figures amid ongoing shutdown-related distortions. It also indicates that concerns about the Fed’s independence are diminishing, helped by expectations that the criminal probe into Chair Powell may not advance much further and opposition from some GOP lawmakers. We believe there’s a fair chance the dollar will ultimately come out stronger from this situation, as Powell might adopt a more firmly hawkish stance to assert Fed independence.

    Additionally, the key message from yesterday’s CPI report is the continued softness in goods prices, highlighting how limited the tariff effects on inflation have been. Several tariff-sensitive categories remained weak, including appliances (-4.3% MoM), furniture (-0.4%), new vehicles (0.0%), and video and audio equipment (-0.4%). This clear trend suggests US retailers are still squeezing their margins. Overall, this strengthens our confidence in a Fed rate cut in March, although it may take time for markets to fully accept this outlook.

    Today, focus shifts to November’s PPI, with core PPI expected to rise by 0.2% month-on-month, and retail sales, which are anticipated to remain fairly strong. A busy lineup of Fed speakers—including Paulson, Miran, Kashkari, Bostic, and Williams—will be closely watched for any subtle hawkish signals in support of Powell and the Fed’s independence.

    Additionally, the Supreme Court is expected to issue a ruling on tariffs today, likely unfavorable. If that happens, significant noise from the Trump administration is expected, though markets are unlikely to be caught off guard. Our baseline expectation is for a mildly positive reaction in the dollar.

    EUR: Greenland Discussions Likely to Have Limited Market Impact

    A US delegation, including JD Vance and Marco Rubio, is scheduled to meet today with officials from Denmark and Greenland. So far, US threats related to Greenland have had minimal impact on markets—limited mostly to some movements in EUR/DKK forwards—meaning there’s little risk premium to be unwound even if the talks lead to a cooperative outcome. Nevertheless, any progress could help eliminate a lingering geopolitical “black swan” risk for European currencies.

    There seems to be potential for an agreement, likely based on the US abandoning any claims of “ownership” over Greenland—a stance firmly rejected by both Denmark and Greenland—in exchange for enhanced economic partnerships and a greater US military presence.

    Positive headlines from the talks might ease the EUR/USD’s recent decline slightly, but we still expect the pair to approach 1.1600 in the near term.

    JPY: Approaching the 160 Level for a Key Test

    The USD/JPY rally shows no signs of slowing. Rising speculation about snap elections is bringing back a political risk premium, giving another push to test Japan’s currency tolerance band. Meanwhile, ongoing diplomatic tensions between Japan and China are adding more momentum to the move.

    On Monday, we viewed 160 as a key upside target. While intervention concerns may slow the rally near that level, it increasingly looks like 160 will eventually be tested. Recall that in July 2024, Japan allowed the pair to surpass 160 and only intervened when it neared 162. Pinpointing the exact intervention level is tricky, but since the BoJ hasn’t acted sooner, it’s reasonable to expect they’ll wait until the pair exceeds 160.

    For context, the first intervention on July 11, 2024, led to a 1.8% drop in USD/JPY. Interestingly, back then, CFTC net non-commercial positions on the yen were at -52% of open interest, whereas now they are 3% net-long, despite spot price action suggesting otherwise.

    The crucial question is whether FX interventions alone can sustain a USD/JPY recovery. Historically, they haven’t. In 2024, interventions curtailed short-term gains but the subsequent USD/JPY decline was driven mainly by a sharp 50bp drop in US 2-year swap rates over the next month. That scenario seems unlikely now, and with snap election risks ongoing, markets remain hesitant to price in a BoJ rate hike before summer.

    Sources: ING