Forex News
- Gold regains positive traction as the US Treasury’s buyback strategy keeps US bond yields depressed.
- The US inflation data fuels Fed rate hike bets, which support the USD and might cap the commodity.
- Traders also opt to wait for Fed Chair Kevin Warsh’s speech on Friday for cues about the policy path.
Gold (XAU/USD) catches fresh bids during the Asian session on Thursday, reversing a major part of the previous day's losses to the $4,583 region, or the weekly low. The precious metal, however, remains below its highest level since May 14, touched on Tuesday, as traders await US Federal Reserve (Fed) Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday for cues about the future policy path. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding bullion.
In the meantime, the slightly hot US inflation data released on Wednesday backed the case for at least one Fed rate hike by the end of this year. In fact, data published by the Commerce Department showed that the US Personal Consumption Expenditures (PCE) Price Index remained unchanged at 3.7% in the 12 months through July, coming in higher than expectations. Adding to this, the core gauge, which excludes volatile food and energy prices, held steady at 3.3%, as anticipated. This points to still-sticky inflation and is likely to intensify the debate over whether interest rates should be lifted or held steady.
Despite hawkish Fed expectations, US bond yields remain depressed on the back of the US Treasury's buyback strategy. Adding to this, the latest optimism over a potential US-Iran peace deal and the reopening of the Strait of Hormuz cap the upside for the USD and offer some support to gold. In fact, media reports suggest that the US and Iran have reached a new ceasefire deal that would be announced in the coming days. Furthermore, Iran’s Deputy Foreign Minister Kazem Gharibabadi said on Tuesday that Tehran and Oman have agreed on a temporary maritime route for ships travelling through the waterway.
Gharibabadi, however, warned that the Strait will not fully reopen until the US fulfills its commitments under an interim peace deal signed in June, keeping the geopolitical risk premium in play. This, in turn, acts as a tailwind for crude oil prices and the safe-haven Greenback, which might keep a lid on the gold price. Hence, it will be prudent to wait for strong follow-through buying and a sustained move beyond the $4,700 mark before positioning for the resumption of the XAU/USD pair's upward trajectory witnessed since the beginning of this month.
XAU/USD daily chart
Technical Analysis
The precious metal holds a bullish near-term bias above the $4,525-$4,515 confluence – comprising the 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the March-June decline. Meanwhile, the Relative Strength Index (RSI) at 68.21 hovers near overbought territory, while the Moving Average Convergence Divergence (MACD) stays in positive territory. These indicators together suggest that upside momentum is still constructive but increasingly stretched.
Hence, it will be prudent to wait for a move beyond the 50% retracement level and the $4,700 mark before positioning for further gains. The subsequent move up could lift the Gold price to the 61.8% level at $4,861.14. Further north, the 78.6% retracement at $5,107.11 and the cycle high region near $5,420.42 form a broader bullish objective if buyers extend the advance. On the flip side, the $4,525-$4,515 confluence might continue to protect the immediate downside. A deeper pullback would expose the 23.6% level at $4,301.87 before the structural floor around the cycle low at $3,956.35.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- South Korean Won rises against the US Dollar as the BoK raises interest rates again.
- The BoK pushes policy rates higher to 3%, in an attempt to increase pressure on high inflation.
- Higher-than-expected growth in the US PCE Price Index data for July has offered support to the US Dollar.
The South Korean Won (KRW) trades higher against the US Dollar (USD) on Thursday, with USD/KRW falling 0.3% to near 1,380 during the Asian trading session. The pair revisits its 11-month low as back-to-back interest rate hikes by the Bank of Korea (BoK) have strengthened the currency.
Earlier in the day, the BoK raised its policy rate by 25 basis points (bps) to 3%, as expected, in an attempt to extend pressure on inflation staying above the central bank’s 2% target.
Inflationary pressures in South Korea cooled to 2.8% Year-on-Year (YoY) in July from 3.2% in June, but the South Korean central bank needed to tighten monetary conditions further to make sure that it returns to the 2% target.
In the policy statement, the BoK also revised up this year’s growth estimate to 3.3% from the 2.6% projected in July. It left this year’s inflation forecast unchanged at 2.7%, Reuters reported.
The South Korean Won has been outperforming the US Dollar for weeks as dollar flows into the Asian nation remained high amid enthusiasm for investment in its companies building sophisticated memory chips and semiconductors.
Won outperforms as AI optimism and buyback flows drive USD/KRW lower
Analysts at Societe Generale note that, in Asia, the Korean Won “continues to lead performance among major Asian currencies, climbing 12% vs USD on a spot basis YTD.” They highlight that the sharp “move in USD/KRW from around 1560 in early June to below 1380 appears stretched but illustrates enthusiasm surrounding the AI and semiconductor sectors.” According to the bank, the earlier SK Hynix ADR-related Dollar inflows seen in July are now being complemented by “sizeable buyback announcements from Samsung ($80bn) and SK Hynix ($28bn), with associated won conversion flows potentially generating additional dollar selling,” reinforcing support for the currency.
On the US Dollar front, hot United States (US) Personal Consumption Expenditure (PCE) Price Index data for July has strengthened the currency. The core PCE Inflation, which is closely tracked by Federal Reserve (Fed) officials, arrived higher at 3.7% Year-on-Year (YoY), while it was expected to remain steady at 3.4%.
Economic Indicator
BoK Interest Rate Decision
The BoK Interest Rate Decision is announced by the Bank of Korea. If the bank is hawkish about the inflationary outlook of the economy and rises the interest rates, it is seen as positive, or bullish, for the KRW, while a dovish outlook for the economy (or a rate cut) is seen as negative, or bearish, for the currency.
Read more.Last release: Thu Aug 27, 2026 01:00
Frequency: Irregular
Actual: 3%
Consensus: 3%
Previous: 2.75%
Source: Bank of Korea
- Market participants closely await Fed Chair Kevin Warsh’s upcoming speech at the annual Jackson Hole symposium.
- July’s PCE price index rose 0.2% month-on-month, bringing the annual inflation rate to 3.7%.
- Safe-haven demand and strong industrial needs in solar, EV, and AI sectors continue supporting Silver prices.
Silver price (XAG/USD) rises after posting losses in the previous day, trading around $69.10 per troy ounce during the Asian hours on Thursday. Investors are closely tuning into Federal Reserve (Fed) Chair Kevin Warsh’s upcoming speech at the annual Jackson Hole symposium on Friday.
Meanwhile, Silver prices are holding firm as market participants continue to evaluate the trajectory of Federal Reserve monetary policy leading into next month's crucial meeting. This steadying comes alongside fresh economic data released Wednesday, which showed July’s PCE price index accelerating to 0.2% month-on-month, beating the 0.1% forecast, while pushing the annual inflation rate up to 3.7%.
Beyond interest rate expectations, precious metals remain supported by the "debasement trade," with investors seeking protection against potential US debt crisis risks and a weakening dollar. Silver is receiving an extra boost from strong fundamental drivers, enjoying robust industrial demand tied directly to green energy technologies, solar photovoltaic panels, electric vehicles, and the expanding infrastructure required for artificial intelligence data centers.
According to TD Securities, the recent strength in precious metals is unlikely to translate into an immediate retest of record highs for Gold. While the supportive backdrop has helped Silver, the bank warns that, “with the market still pricing in hikes for 2027, and the energy market remaining a notable risk, we caution this rally may be too early for a renewed run back to record highs for the yellow metal.”
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- NZD/USD posts modest losses near 0.5950 in Thursday’s early Asian session.
- The US July PCE rose 0.2% on the month and 3.7% on the year.
- Jackson Hole symposium event will be in the spotlight on Friday.
The NZD/USD pair trades with mild losses around 0.5950 during the early Asian session on Thursday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) as US inflation data lifted expectations of a Federal Reserve (Fed) rate hike. All eyes will be on the Jackson Hole Symposium event later on Friday.
The Personal Consumption Expenditures (PCE) Price Index rose 3.7% in the 12 months through July, unchanged from June and slightly above the 3.6% estimate, according to the US Commerce Department on Wednesday. On a monthly basis, the PCE increased 0.2% after falling 0.1% in June, above the consensus of a 0.1% growth.
Meanwhile, the core PCE inflation, the Fed’s preferred inflation gauge, held steady at 3.3% YoY in July, in line with expectations.
This report kept the market's expectation for a Fed rate hike by year-end alive, though Chairman Kevin Warsh's upcoming speech at Jackson Hole "will be the ultimate test," Westpac economist Ryan Wells said.
Markets are now pricing in nearly a 38% chance of a 25 basis points (bps) Federal Reserve (Fed) rate hike in September, compared with 36% before the data, according to the CME FedWatch tool.
Traders await the speech from Fed Chairman Kevin Warsh at the Jackson Hole symposium on Friday. This event could offer some clues about the outlook for US interest rates.
RBNZ hike to 2.75% seen as virtually fully priced ahead of September decision
Brown Brothers Harriman notes that attention is now firmly on the next Reserve Bank of New Zealand policy meeting, with Elias Haddad highlighting that “the next RBNZ policy decision, which also includes a fresh Monetary Policy Statement, is on September 2 and a 25bps back-to-back hike to 2.75% is virtually fully priced-in.” This underscores market conviction that the central bank will continue its tightening cycle, even as recent data have pointed to some softness in headline retail activity.
Technical Analysis: Positive outlook of NZD/USD prevails above the 100-day SMA
In the daily chart, NZD/USD keeps a constructive bullish tone as spot holds above the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line. Price is approaching the upper Bollinger Band, suggesting the latest advance is stretching toward the upper volatility envelope, while the Relative Strength Index (14) around 61.7 stays in positive territory without yet signaling overbought conditions.
On the topside, immediate resistance is located at the upper Bollinger Band at 0.5985, where buyers could start to encounter profit-taking. On the downside, initial support emerges at the Bollinger middle band at 0.5905, ahead of a deeper cushion at the 100-day SMA near 0.5845, with the lower Bollinger Band around 0.5830 reinforcing the broader demand zone on pullbacks.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
The United Kingdom Maritime Trade Operations (UKMTO) said on Thursday that an "unknown projectile" struck a tanker in the Strait of Hormuz, causing a fire that has since been put out, Reuters reported.
A British maritime agency further stated all crew safe and accounted for with no environmental impact reported.
"Local authorities have reported a tanker has been hit by an unknown projectile causing fire to the vessel which has since been extinguished," said UKMTO.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is down 0.27% on the day at $82.33.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- AUD/USD holds strong on rising RBA rate hike expectations despite weak capital expenditure data.
- Hotter July inflation prompted major banks to forecast an RBA cash rate increase to 4.6% soon.
- A firm US Dollar, backed by solid PCE inflation data, caps upside potential for the pair.
AUD/USD extends its gains for the third successive day, trading around 0.7180 during the Asian hours on Thursday. The pair continues to trade with a bullish bias as the Australian Dollar (AUD) maintains its strength, showing resilience despite domestic Private Capital Expenditure falling 3.6% in the second quarter, sharply missing expectations of a flat reading after a previous 6.5% gain.
This underlying AUD strength is primarily driven by heightened expectations of an upcoming Reserve Bank of Australia (RBA) interest rate hike, catalyzed by a hotter-than-expected July inflation report that signaled persistent price pressures. These elevated inflation figures have forced major financial institutions to revise their RBA rate path forecasts upward.
National Australia Bank (NAB) now anticipates a rate increase to 4.6% at the September meeting, whereas Commonwealth Bank and ANZ project a move in November while acknowledging the distinct risk of an earlier action. Although the RBA held its cash rate steady at 4.35% in August following three previous hikes, policymakers explicitly warned that further monetary tightening remains on the table if inflationary risks escalate.
Australia leading index points to a soft, not weak, growth backdrop
BNY Mellon’s Geoff Yu notes that Australia’s Westpac–Melbourne Institute Leading Index showed a modest improvement in July, with the six‑month annualised growth rate rising to “-0.2% from -0.4% in June.” He points out that the index “remains below trend for a seventh straight month,” but stresses that the signal is now “only marginally negative,” indicating an economy that is “soft rather than outright weak.” This nuanced reading of the data reinforces the view that underlying momentum has cooled without tipping into clear-cut weakness.
However, upside potential for the pair may be capped by steady performance from the US Dollar (USD). Stronger-than-expected US economic data has reinforced market expectations that the Federal Reserve (Fed) will implement another interest rate hike before the year concludes. July's PCE price index accelerated to 0.2% month-on-month, beating the 0.1% forecast, while the annual rate ticked up to 3.7%. Investors are now turning their focus to Fed leadership for clearer policy cues at the upcoming Jackson Hole symposium.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- USD/CAD struggles to capitalize on its weekly gains amid a combination of diverging forces.
- Geopolitical risks support crude oil prices, underpinning the Loonie and capping the major.
- Fed hike bets act as a tailwind for the USD and spot prices amid US-Canada trade tensions.
The USD/CAD pair is seen consolidating near the weekly high and trading around the 1.3875-1.3880 region during the Asian session on Thursday amid mixed fundamental cues.
Despite the optimism over the reopening of the Strait of Hormuz, the protracted Russia-Ukraine war keeps a floor under crude oil prices. This is seen offering some support to the commodity-linked Loonie, though US-Canada trade tensions keep a lid on any meaningful gains. Furthermore, the slightly hot US inflation data released on Wednesday keeps Federal Reserve (Fed) rate hike bets on the table, which helps the US Dollar (USD) preserve overnight gains and acts as a tailwind for the USD/CAD pair.
The Russia-Ukraine war has entered a new phase, with both countries causing destruction with long-range drones and missiles. Ukraine’s attacks this week included a drone strike that caused a massive fire at one of Russia’s largest oil refineries, near Nizhny Novgorod, on Wednesday. Meanwhile, Iran and Oman have agreed on shipping routes through the Strait of Hormuz, though Tehran warned that the waterway will not fully reopen. This, in turn, is seen lending some support to crude oil prices.
Meanwhile, the US Commerce Department reported on Wednesday that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% over the 12 months through July, unchanged from the previous month. The reading, however, was above consensus estimates and pointed to still sticky inflation, backing the case for policy tightening by the US Federal Reserve (Fed). Moreover, the geopolitical risk premium remains in play, supporting the buck and the USD/CAD pair.
Traders also seem reluctant to place aggressive directional bets and opt to wait for more cues about the Fed's future policy path. Hence, the focus will remain glued to Fed Chair Kevin Warsh's scheduled speech at the Jackson Hole Symposium on Friday. In the meantime, Thursday's release of the usual Weekly Initial Jobless Claims could influence the USD. Apart from this, oil price dynamics might provide some impetus to the USD/CAD pair and contribute to producing short-term trading opportunities.
USD/CAD 4-hour chart
Technical Analysis
The USD/CAD pair keeps a mildly bearish near-term tone under the 100-period Simple Moving Average (SMA) on the 4-hour chart, at 1.3902. Moreover, price action suggests upside attempts remain capped by this overhead level, leaving spot prices vulnerable to further consolidation or a corrective pullback.
However, a sustained break above this barrier would ease the current downside bias and open the way for a stronger recovery toward the next relevant hurdle near the 1.3955-1.3960 horizontal zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Thursday that central bank should persist in raising policy rate and adjust monetary support based on economic, price, and financial trends.
Key quotes
Risk of economy facing severe downturn has diminished.
Weak yen boosts global firms' profits but weighs on household real income.
Want to scrutinise various effect weak yen has on economy.
Core role of boj is to ensure that everyone can use the yen as a currency with confidence and efficiently.
Monetary policy isn't aimed at controling fx rates but fx moves are among key factors that affect economy, prices.
Must be mindful that fx moves could affect underlying inflation through changes in inflation expectations.
Real interest rates are negative in short-, medium-term zone.
Japan's financial conditions remain accommodative, supporting economy.
Desirable to avoid situation where delay in rate hike leads to sharp inflation, require rapid rate hikes thereafter.
Accomodative monetary condition will be positive for economy.
Rising global AI demand will push up both economy, prices.
Weak yen works to push up inflation.
Believe BoJ should continue to raise the policy interest rate and adjust the degree of monetary accommodation in accordance with developments in economic activity, prices, and financial conditions.
Must be mindful of upside price risks more than ever before.
Important to stabilise underlying inflation at a level around 2%.
We will debate at each policy meeting taking into mind such risks.
If underlying inflation deviates upward to a level above the price stability target of 2%, that would have an adverse impact on the economy.
In guiding policy we must look at various factors.
We should pay greater attention to the upside risk to prices than in the past.
Main factor in guiding policy is not underlying economic conditions but outlook and risks.
It will take time for monetary policy to affect prices.
Effective use of monetary policy can prevent economy deviating from path toward sound development.
The biggest challenge in our communication lies in the matter of time horizons.
As financial conditions remain accommodative, I believe we need to ease off the accelerator in a timely manner, continue to raise policy rate.
Monitoring current conditions is fundamental to the assessment of the outlook and risks, but the policy debate tends to put more weight on the future outlook and risks.
In easing off the accelator and raising rates, we must carefully check road conditions ahead taking into account weather forecast and other information.
Focusing solely on immediate reactions may risk losing sight of the whole range of implications of a policy change.
Downward pressure on the economy and upward pressure on prices will therefore materialize, but the risk of availability problems causing major economic downturns has diminished.
Market reaction
At the time of writing, the USD/JPY pair is down 0.04% on the day at 159.24.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 6.7840 compared to the previous day's fix of 6.7829 and 6.7261 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- USD/JPY drifts lower as Hormuz optimism counters Fed hike bets and undermines the USD.
- Japan’s fiscal woes and the wide US-Japan rate gap might cap the JPY and support spot prices.
- Traders await the Tokyo CPI and Fed Chair Kevin Warsh’s speech on Friday for a fresh impetus.
The USD/JPY pair attracts some sellers during the Asian session on Thursday, snapping a three-day winning streak, though the downside potential seems limited. Spot prices currently trade above the 159.00 mark as the focus remains on Tokyo inflation data and the Jackson Hole Symposium on Friday.
In the meantime, the optimism over a potential US-Iran peace deal and the reopening of the Strait of Hormuz cap the slightly hot US inflation data-led US Dollar (USD) move up, exerting some pressure on the USD/JPY pair. Russian state media reported that the US and Iran have reached a new ceasefire deal that would be announced in the coming days. Another report said that Iran and Oman have agreed on commercial shipping routes through the Strait of Hormuz.
This offsets expectations for at least one interest rate hike by the US Federal Reserve (Fed) in 2026 and keeps USD bulls on the defensive. The US Commerce Department reported on Wednesday that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% over the 12 months in July, unchanged from the previous month and slightly above consensus estimates. This points to still sticky inflation and backs the case for the Fed's policy tightening.
Hence, Fed Chair Kevin Warsh's speech on Friday will be scrutinized closely for more cues about the future policy path, which will play a key role in influencing the near-term USD price dynamics. The Japanese Yen (JPY), on the other hand, might struggle to attract any meaningful buyers amid concerns about Japan's worsening fiscal condition and the still wide US-Japan rate gap, despite bets for faster Bank of Japan rate hikes. This warrants caution for USD/JPY bears.
USD/JPY 4-hour chart
Technical Analysis:
The USD/JPY pair holds a constructive bullish tone above the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the decline from a four-decade high. On the topside, immediate resistance is located at the 50.0% retracement at 159.63, followed by the 61.8% and the 78.6% Fibo. levels at 160.66 and 162.13, respectively, ahead of the cycle high zone near 163.99.
On the downside, initial support is seen at the 100-period SMA at 158.88, with deeper demand aligning at the 38.2% retracement at 158.60 and the lower Fibonacci floors at 157.33 and 155.27.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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