Forex News
- Japanese holiday keeps trading light, while the BoJ is expected to hold rates steady in October.
- Softening US consumer sentiment and cooling Fed rate hike expectations weigh on the US Dollar.
- Resurfacing Middle East tensions add broader macroeconomic uncertainty, keeping traders cautious ahead of key US inflation data.
USD/JPY depreciates after registering modest gains in the previous trading day, hovering around 158.10 during Asian hours on Monday. The pair may see limited movement due to thin trading conditions as Japanese markets are closed for the Sports Day public holiday.
Ahead of the Bank of Japan (BoJ) October 29–30 meeting, policymakers will review additional third-quarter data expected to show resilient exports alongside elevated costs for businesses and households. However, a back-to-back interest rate increase is unlikely following their September hike.
BoJ Governor Kazuo Ueda noted that rapid tightening paces were typically seen in North America and Europe during 2022 following pandemic-related supply chain disruptions and a strong demand recovery. Market participants currently anticipate the central bank will raise the overnight interest rate target to 1.50% from 1.25% in December or January, marking the seventh increase in this cycle, before potentially raising it further to 1.75% in March or April.
Meanwhile, the USD/JPY pair lost ground as the US Dollar (USD) faced headwinds from softening domestic economic sentiment. The University of Michigan's Consumer Sentiment Index dropped to 46.3 in October from 48.1 in September, falling short of the market expectation of 47.6. Investors are now looking ahead to key inflation metrics, with the September Consumer Price Index (CPI) and Producer Price Index (PPI) scheduled for release on Wednesday and Thursday.
Monetary policy expectations for the Federal Reserve (Fed) remain cautious, with CME FedWatch indicating only a 17.7% chance of a rate hike of at least 25 basis points this month, down from 24.4% a week prior. Conversely, market participants are pricing in an 84.1% probability of a hike at the Fed's December meeting. Adding to broader macro uncertainty, energy market concerns resurfaced after US President Donald Trump indicated he was considering joining Saudi Arabia in its campaign against Iran-backed Houthi militants in Yemen following another deadly attack on Riyadh's international airport.
Higher US real yields underscore growth and rate expectations
Nordea’s Sara Midtgaard notes that the “recent rise in US Treasury yields has largely reflected higher expected short-term real rate, rather than a large increase in the term premium.” She explains that “real yields are the returns investors require after accounting for inflation” and points out that they “tend to rise when markets expect stronger real growth or a higher path for real interest rates,” underlining how the latest move in yields is being driven more by shifting growth and policy expectations than by a repricing of longer-term risk.
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.
- GBP/USD kicks off the new week on a positive note as softer US bond yields undermine the USD.
- Geopolitical uncertainties could help limit deeper USD losses ahead of key data/event risks.
- The UK GDP, US inflation figures, BoE Bailey and Fed Warsh's speeches are due this week.
The GBP/USD pair attracts some buyers for the third straight day, trading around mid-1.3200s during the Asians session on Monday, though it remains confined in a familiar range held over the past three weeks or so.
The recent minor pullback in US bond yields from multi-year highs keeps US Dollar bulls on the defensive, which, in turn, is seen as a key factor acting as a tailwind for the GBP/USD pair. Meanwhile, UK Chancellor John Healey repeated his commitment to strict fiscal discipline during his upcoming debut budget on October 28, turning out to be another factor supporting the British Pound (GBP) and the currency pair.
Traders, however, might opt to wait for Healey's speech at the annual meetings of the IMF and World Bank in Bangkok. Traders will further take cues from the Bank of England (BoE) Governor Andrew Bailey and the US Federal Reserve (Fed) Chair Kevin Warsh's speeches on Friday. Apart from this, the monthly UK GDP report and the latest US inflation figures should provide a fresh impetus to the GBP/USD pair.
In the meantime, persistent geopolitical uncertainties stemming from the US-Iran standoff could help limit losses for the safe-haven buck. In fact, tensions in the Middle East deepened on Sunday after Iran’s top security official declared Washington’s response to its proposal for reopening the strategic Strait of Hormuz insufficient, while US President Donald Trump considers renewed military strikes against Tehran.
This might hold back traders from placing aggressive bearish bets on the Greenback amid relatively thin liquidity on the back of a holiday in the US and keep a lid on any further appreciation for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying and a breakout through a short-term range before confirming that the currency pair has bottomed out and positioning for further gains.
GBP/USD 4-hour chart
Technical Analysis
The recent range-bound price action witnessed over the past three weeks or so could be categorized as a bearish consolidation phase against the backdrop of the decline from the August swing high. Moreover, the GBP/USD pair trades beneath the 100-period Simple Moving Average (SMA) dynamic barrier on the 4-hour chart, suggesting that rallies remain capped as sellers retain the advantage while spot prices stay below this barrier.
The said barrier is pegged near 1.3260 and is followed by the top boundary of the trading range, around 1.3300. Sustained strength above the latter is needed to ease bearish pressure and open the way toward higher levels. On the downside, bears might await some follow-through weakness below 1.3180 before placing fresh bets and positioning for an extension of the downfall from the August monthly swing high near 1.3675.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
On Monday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.7313 compared to Friday's fix of 6.7330 and 6.6977 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.
The Saudi-led military coalition said that it has intercepted and destroyed a ballistic missile fired by Yemen's Houthis towards southern Saudi Arabia, the Time of Israel reported on Sunday.
“The coalition intercepted and destroyed a ballistic missile launched by the Houthi terrorist militia towards Khamis Mushait,” said Maj. Gen. Turki al-Malki, a spokesman for the coalition.
Earlier Sunday, Saudi Civil Defense issueed warning over potential hazard in Abha.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is down 1.70% on the day at $89.45.
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.
- EUR/USD rebounds to around 1.1215 in Monday’s early Asian session.
- US Consumer Sentiment deteriorates further in October.
- French bond woes might cap the upside for the Euro.
The EUR/USD pair recovers some lost ground to near 1.1215 during the early Asian trading hours on Monday. The US Dollar (USD) softens against the Euro (EUR) after weaker-than-expected US Consumer Sentiment data. European Central Bank (ECB) Vice President Boris Vujčić is set to speak later in the day.
US consumer sentiment deteriorated further in October as soarinf oil prices due to the Middle East conflict soured households' views of the economy, the University of Michigan's (UoM) Surveys of Consumers showed on Friday. The UoM Consumer Sentiment Index dropped to 46.3 in October from 48.1 in September. This reading came in below the market consensus of 47.6.
Additionally, UoM one-year inflation expectations climbed to 4.7% in October from 4.6% in the previous reading. Consumers' expectations for inflation over the next five years jumped to 3.5% percent from 3.4% in September. However, this data has cemented expectations for a 25 basis points (bps) Federal Reserve (Fed) rate hike at their upcoming meeting.
On the other hand, French debt turmoil could exert some selling pressure on the shared currency. French government bond yields have surged to multiyear highs in recent days, as the country’s mounting debt crisis fuels wider concerns about Europe’s strained public finances.
Traders will closely monitor Italy amid contentious new government spending plans. The Italian government is set to introduce a budget encompassing recently approved allocations to defense and energy, which are expected to increase the country’s budget deficit over the next two years and push its debt-to-GDP ratio toward the highest level in Europe, according to CNBC.
Euro steadies as Eurozone resilience offsets rising China trade risks
Analysts at MUFG argue that, despite recent Euro weakness, they “continue to see evidence of economic resilience in Europe that could help stabilise the euro at these lower levels.” They point to Germany, where “the Economy Ministry… revised up its GDP growth projection from 0.5% and 0.9% for this year and next to 1.3% and 1.1% respectively.” Growth had previously been downgraded in response to the war, but MUFG notes that “the new estimate for this year is above the 1.0% estimate at the start of the year underlining the level of resilience.”
At the same time, the bank highlights mounting trade frictions with China as a potential headwind for the single currency. MUFG flags “speculation that Europe is soon to respond with agreeing to a more flexible trade policy mechanism that would allow for easier implementation to counter against huge imports to Europe from China,” adding that “an import cap could be agreed as well as additional tariffs that could see trade tensions rise and prompt retaliation from China.” The bank warns that “these talks could be the final opportunity to avoid increased tensions,” and cautions that “an escalation into grater trade conflict could be another EUR negative factor.”
On the currency side, MUFG observes that “this mounting pressure looks to be encouraging China too allow renewed gains.” They note that “recent PBoC fixing in USD/CNY indicate a desire to keep CNY on a strengthening path despite the broader gains for the dollar,” with “EUR/CNY… 10% lower from the January high” and “near-term scope for further declines.” The bank adds that “the continued CNY strength is helping isolate Asian currencies from the broader dollar gain,” pointing out that “while the DXY has advanced 3.3% from the September low, the dollar against a basket of Asia FX is just 0.7% higher.”
Moulin pins Eurozone inflation on energy as geopolitical shock deepens
Moulin’s 6.2/10 score matches the historic average on FXS Speechtracker, signaling no meaningful shift in tone from past communications. By stressing that inflation is “clearly 100% energy” and that second-round effects are not visible, the speech leans mildly dovish on the underlying inflation dynamic, even as Moulin acknowledges an inflationary shock.
At the same time, the warning that the geopolitical shock is transmitting into a financial shock, while Euro area growth remains “quite resilient,” keeps the door open for the ECB to maintain a cautious policy stance. For the Euro, this mix of energy-driven inflation and resilience in activity suggests limited immediate hawkish escalation, but it reduces the scope for aggressive easing expectations in the near term.
Technical Analysis: EUR/USD retains a negative tone amid oversold conditions
In the daily chart, EUR/USD extends a bearish phase with spot holding below the 100-day simple moving average (SMA) and even beneath the Bollinger Bands’ 20-day middle line. This configuration keeps the pair structurally capped on rallies, while the Relative Strength Index (14) around 27 suggests oversold conditions that may slow, but not yet reverse, the downside pressure.
On the downside, immediate support is aligned with the lower Bollinger Band at roughly 1.1125, where sellers could start to book profits if reached. On the topside, initial resistance emerges at the Bollinger 20-day middle band around 1.1345, followed by the 100-day SMA at 1.1490 and then the upper Bollinger band near 1.1560, levels that would need to be reclaimed to ease the current bearish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- WTI may appreciate as attacks on Saudi Arabia and an Omani tanker trigger retaliatory threats, heightening Persian Gulf supply risks.
- Potential Russia-Ukraine energy ceasefire claims remain unconfirmed by Kyiv despite discussions with Western allies.
- US releases 4 million barrels from strategic reserves to offset Hurricane Isaias disruptions.
West Texas Intermediate (WTI) declines after two days of gains, trading around $90.00 per barrel during Asian hours on Monday. However, crude oil prices may regain ground following deadly attacks on Riyadh’s King Khalid International Airport, which has prompted United States (US) President Donald Trump to consider joining Saudi Arabia in retaliating against Iran-backed Houthis in Yemen. The Riyadh airport was targeted again on Sunday by Houthi militants, just a day after a previous strike killed 12 people and injured more than 300.
Adding to regional supply risks, a drone struck an oil tanker near the Sohar anchorage off Oman over the weekend, just outside the Strait of Hormuz, highlighting ongoing vulnerabilities despite signs of higher crude exports from the Persian Gulf.
Meanwhile, geopolitical developments surrounding Russia and Ukraine remain uncertain. President Trump claimed that Russia and Ukraine have agreed to an "energy ceasefire," though he provided no specific details.
Ukrainian President Volodymyr Zelenskyy noted that while he discussed an energy ceasefire with leaders from Canada, Finland, and NATO, he was unaware of any agreement between Ukraine and Russia announced by Trump. However, Zelenskyy added that if Moscow were to agree to such a ceasefire, Kyiv would accept it.
US Department of Energy announced the approval of an emergency exchange involving up to 4 million barrels of crude oil from strategic reserves. This measure is intended to help mitigate supply disruptions caused by Hurricane Isaias.
Systematic flows whipsawed as WTI hovers around key CTA trigger
According to TD Securities, systematic players are struggling to find direction as “CTAs [are] whipsawing in WTI,” with recent price action underscoring that “the $90/bbl region is proving to be an important CTA level in WTI crude.” The bank notes that this zone has become a pivotal reference point for trend-following strategies, as crude repeatedly oscillates around it and triggers rapid shifts in positioning.
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 gains ground to near 0.6985 in Monday’s early Asian session.
- Consumer Sentiment Index dropped to 46.3 in October, vs 48.1 prior.
- The odds of the RBA lifting interest rates in November have fallen sharply after the latest CPI data.
The AUD/USD pair trades with mild gains around 0.6985 during the early Asian session on Monday. Softening US Consumer Sentiment weigh on the US Dollar (USD) against the Australian Dollar (AUD). Traders will keep an eye on the Minutes of the Reserve Bank of Australia meetings, which are due on Tuesday.
The University of Michigan's Consumer Sentiment Index fell to 46.3 in October from 48.1 in September. This figure came in weaker than the market expectations of 47.6. Nonetheless, UoM inflation expectations rose, cementing expectations for a 25 basis points (bps) Fed rate hike at its upcoming meeting.
Markets are pricing in only a 17.7% chance for a Fed rate hike of at least 25 basis points this month, down slightly from 24.4% a week ago, according to CME Fedwatch. Investors are pricing in an 84.1% odds for a hike at the central bank's December meeting.
On the Aussie front, traders reduced their bets on a Reserve Bank of Australia (RBA) rate increase in the November policy meeting after the latest Consumer Price Index (CPI) came in line with expectations. Former RBA board member Ian Harper said that a further interest rate hike this year is "plausible", but not necessarily likely.
Money markets are now betting the Australian central bank will likely keep rates on hold at its next meeting in early November. The odds of a rate hike dropped to around 20%, according to market data from LSEG.
Lower US Treasury volatility offers support to risk-sensitive currencies
Strategists at OCBC highlight that “solid 10yr and 30yr Treasury auctions over consecutive days show there is a level where buyers step in,” helping to steady the rates backdrop after recent turbulence. They note that “Treasury volatility, tracked by the MOVE index, was at the epicentre of the recent global rate volatility before it was overtaken by French government bond volatility,” underscoring how the focus has shifted away from US duration. Looking ahead, OCBC argues that “the recent turn lower in the MOVE index, if sustained, should prevent the wobbling of risk-sensitive currencies like AUD and EM carry trades from turning into a deeper sell-off,” suggesting a more supportive environment for high-beta FX and carry positions.
Fed’s Musalem flags need for further tightening as inflation stays elevated
Fed’s Musalem delivered a clearly hawkish message, with a FXS Speechtracker score of 7.3/10, marginally above the 7.2/10 historical average and signaling a tone slightly firmer than the established baseline. The emphasis that “more monetary policy firming will be required” to bring inflation back to 2% in a timely manner, alongside comments that the economy is “pretty strong” and the job market “balanced and stable,” underscores a bias toward additional rate hikes even as Musalem claims to go into meetings with an open mind. Musalem’s focus on persistent demand pressures, supply shocks, and structurally higher real yields driven by strong capital demand and AI investment points to a view that policy rates may need to stay higher for longer to keep inflation expectations anchored and protect the Dollar’s yield advantage.
The FXS Fed Sentiment Index slipped by 0.25 points to 138.33, indicating a modest pullback in perceived hawkishness despite the speech remaining firmly in tightening territory. With the index well above the neutral 100 mark, the Fed is still seen as hawkish overall, and Musalem’s remarks about considering rate increases and structurally higher rates reinforce that stance even as the incremental shift in the index suggests some moderation at the margin.
Technical Analysis: AUD/USD keeps a bearish vibe below the 100-day SMA
In the daily chart, AUD/USD holds a bearish near-term bias as price sits beneath the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle SMA, keeping the broader tone capped after the recent slide from the 0.72 area. The Relative Strength Index (14) at 40.9 remains below the midline, hinting at lingering downside pressure rather than oversold conditions, while the lower Bollinger band near 0.6889 marks the next volatility floor below the market.
On the topside, initial resistance emerges at the Bollinger middle band around 0.7020, followed by the 100-day SMA at 0.7045, a zone that would need to be reclaimed to ease the current bearish tone, with a more distant hurdle at the upper Bollinger band near 0.7155. On the downside, the only nearby structural support is seen at the lower Bollinger band at 0.6890, where a break would open the door to a deeper decline, while holding above this band would suggest consolidation within the current downtrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Meanwhile, US President Donald Trump claimed Russia and Ukraine have agreed to an ”energy ceasefire”, but he offered no details on it,the Guardian reported on Sunday.
Ukraine’s President Volodymyr Zelenskyy said that he has talked an energy ceasefire with the leaders of Canada, Finland and Nato and is awaiting details from the US, the Guardian reported on Sunday.
Zelenskiy said that he was not aware of an “energy ceasefire” between Ukraine and Russia announced by Trump, but added that if Moscow agreed to such a ceasefire, Kyiv would accept it.
“Ukraine supports the ceasefire, and it’s important for Russia to support it as well. We are awaiting details from the American side. From our Ukrainian side, there is always FULL support for de-escalation steps, protection of lives, and the necessary decisions to end the war and ensure lasting peace,” said Zelenskyy.
On Friday, US President stated that he struck a deal with Russian President Vladimir Putin for Russia to supply diesel in stages. The source said Russia would supply more than 300,000 tons of diesel immediately, 500,000 tons in November, 1 million tons after that and a further 3 million tons afterwards.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Here’s a brief recap of the key developments in the Middle East war that occurred over the weekend, which are expected to have a significant impact on markets in the upcoming week.
- The Saudi-led coalition said in a statement that an unidentified projectile hit a passenger terminal at King Khalid International Airport in Riyadh on Sunday. The Houthis swiftly claimed the attacks, saying they were a response to “Saudi aggression.”
- The incident followed the strike on King Khalid airport on Saturday that killed 12 people and injured 309 others, marking the deadliest single event in Saudi Arabia since the Iran war began in late February.
- US President Donald Trump warned on Saturday that Iran "will not exist" if it does not cooperate with the US in negotiations. He further stated that he is considering joining Saudi Arabia in its retaliation against Tehran-backed Houthis in Yemen after a deadly attack on Riyadh’s main airport.
- US Central Command (CENTCOM) said that it disabled a commercial cargo vessel in the Gulf of Oman after the ship’s crew "ignored repeated warnings and attempted to run the ongoing naval blockade against Iran" on Saturday.
- The United Kingdom Maritime Trade Operations (UKMTO) said on Sunday that it reclassified an incident in the vicinity of Sohar anchorage in Oman as an attack after confirmation that the tanker was struck by a drone.
- Secretary of Iran’s Supreme National Security Council, Mohsen Rezaei, said Washington has accepted some of Tehran’s conditions for an agreement, but its response remains “inadequate”.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
- AUD/USD rises 0.38% on Friday, securing a 0.58% weekly gain.
- US consumer sentiment falls to 46.3, while inflation expectations climb.
- Markets see an 81% chance of an October Fed hold and December hike.
The Aussie Dollar ended Friday’s session on a positive note, gaining 0.38% and 0.58% weekly as the US Dollar trimmed some of its weekly gains, while US data confirmed investors' expectations that the Federal Reserve would hold rates steady in the October meeting. The AUD/USD trades at 0.6983.
AUD/USD closes at 0.6983 as softer US sentiment supports the Aussie despite renewed December hike bets
Market mood was upbeat on Friday, with Wall Street posting losses, as a solid earnings session drove US equities close to record highs. The US Dollar Index (DXY), which tracks the buck’s performance against six currencies, drifted higher by 0.12% to 102.73.
Data from the US revealed that consumers are becoming pessimistic about the economy, as the Consumer Sentiment Index for October slipped to 46.3, down from 48.1 and missing estimates of 47.6. The same survey showed that inflation expectations for 1- and 5-year horizons rose, with the former from 4.6% to 4.7% and the latter from 3.4% to 3.5%.
The FOMC minutes showed full support for a rate hike but revealed division: some saw it as precautionary, others as the start of a tightening cycle.
Fed speakers continue this week. Fed Governor Waller favors more rate hikes, not necessarily consecutive. St. Louis Fed's Musalem says inflation is high and the strong labor market requires the Fed to address it.
Money markets suggest no Federal Reserve rate hike in October, with 81% chance that rates will stay pat. For December, there's an 81% chance of a 25-basis-point increase to the Fed funds rate, based on Prime Terminal data.
Over the next week, Australia’s economic docket will feature the release of the Reserve Bank of Australia (RBA)'s minutes from its last meeting. Two days after that, employment data would dictate the Aussie Dollar’s direction.
In the US, traders will focus on inflation data for consumers and producers, then look at Retail Sales, Fed speeches, and employment reports.
AUD/USD Price Forecast: Technical Outlook
In the daily chart, AUD/USD trades at 0.6984, keeping a bearish near-term tone as spot holds beneath the triple simple moving average cluster around 0.7089. The pair also remains below a well-defined horizontal barrier at 0.7198, suggesting rallies are likely to face selling pressure while price stays capped under these overhead levels. The Relative Strength Index (14) near 40 hints at weak but not extreme bearish momentum, aligning with a corrective phase rather than an oversold capitulation.
On the topside, immediate resistance is seen at the 50/100/200-day simple moving averages grouped near 0.7089, followed by the horizontal line at 0.7198, where previous supply is likely to re-emerge. On the downside, the broader structure is underpinned by several rising trend-line supports originating from the 0.68–0.69 area, which suggest that while the short-term bias is negative, the medium-term uptrend is still intact unless price decisively breaks below those ascending baselines.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar Price This week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.54% | 0.04% | 0.28% | -0.01% | -0.48% | 0.06% | 0.19% | |
| EUR | -0.54% | -0.48% | -0.14% | -0.52% | -0.98% | -0.52% | -0.32% | |
| GBP | -0.04% | 0.48% | 0.31% | -0.01% | -0.50% | -0.02% | 0.16% | |
| JPY | -0.28% | 0.14% | -0.31% | -0.26% | -0.66% | -0.21% | -0.05% | |
| CAD | 0.00% | 0.52% | 0.01% | 0.26% | -0.42% | -0.02% | 0.20% | |
| AUD | 0.48% | 0.98% | 0.50% | 0.66% | 0.42% | 0.49% | 0.69% | |
| NZD | -0.06% | 0.52% | 0.02% | 0.21% | 0.02% | -0.49% | 0.18% | |
| CHF | -0.19% | 0.32% | -0.16% | 0.05% | -0.20% | -0.69% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
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