Forex News
- AUD strengthens after Australia's July CPI hit 3.5% YoY, beating the 3.2% forecast despite easing from June's 3.8%.
- Australia's July CPI rose 1.0% MoM, beating forecasts, while annual Trimmed Mean CPI increased 3.6%.
- Japan's service-sector inflation reached 3.6% in July, reinforcing BoJ views that tight labor markets drive consumer price increases.
AUD/JPY gains ground for the second consecutive day, trading around 114.20 during the Asian hours on Wednesday. The currency cross remains stronger as the Australian Dollar (AUD) gains ground after the Consumer Price Index (CPI) climbed 3.5% year-over-year (YoY) in July, compared with 3.8% growth in June. The market forecast was a 3.2% print for the reported period.
Australia’s monthly Consumer Price Index rose 1.0% in July, up from a 0.1% decrease, beating the estimated 0.8% increase. Meanwhile, the Trimmed Mean CPI increased 0.5% MoM in July. Annually, the Trimmed Mean CPI advanced 3.6% YoY during the same period.
The AUD/JPY cross has appreciated as the Japanese Yen (JPY) faces challenges from Japan’s expansionary fiscal policy, high national debt, and a wide interest-rate differential with other major economies. However, potential losses for the Yen may be limited by growing expectations of further Bank of Japan tightening, with markets currently pricing in a rate hike next month.
Yen focus shifts to BoJ tone beyond September meeting
Strategists at Scotiabank highlight that, with markets increasingly looking past the September 18 BoJ decision, “greater risk will center around the central bank’s tone as market participants look beyond the September 18 meeting.” They note that investors are likely to scrutinize the Bank’s communication for guidance on the subsequent policy path, rather than the single event itself.
Underpinning these tightening expectations, fresh data released on Wednesday showed that a key gauge of Japan's service-sector inflation rose 3.6% year-over-year in July. This increase reinforces the central bank's perspective that a tight labor market is actively encouraging firms to pass rising operational costs on to consumers.
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Last release: Wed Aug 26, 2026 01:30
Frequency: Monthly
Actual: 3.5%
Consensus: 3.2%
Previous: 3.8%
Source: Australian Bureau of Statistics
According to August 17-24 survey in a Reuters poll, 57% of economists expected the Bank of Japan (BoJ) to raise its interest rate in September, a sharp turnaround from a July poll.
A minority, 10 of 58, saw it to follow with another hike to 1.50% in either October or December.
Nearly two-thirds of analysts, 35 of 54, saw the policy rate to reach at least 1.5—% by end-March next year, three months earlier than projected in July's poll. Around 60% foresaw the rate reaching at least 1.75% by end-Q3 2027.
Half of 36 respondents who answered an extra question said 1.75% would be the terminal rate compared with just 19% last month. The share of those choosing "2% or above" rose to 36% from 23% in July.
Market reaction
At the time of writing, the USD/JPY pair is down 0.17% on the day at 158.92.
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.
Australia’s Consumer Price Index (CPI) rose by 3.5% year-over-year (YoY) in July, compared to a 3.8% growth reported in June, the latest data published by the Australian Bureau of Statistics (ABS) showed on Wednesday.
The market forecast was a 3.2% print for the reported period.
The monthly Consumer Price Index climbed by 1.0% in July, compared to the previous reading of a 0.1% decrease, beating the estimated 0.8% increase.
Meanwhile, the Trimmed Mean CPI increased 0.5% MoM in July. Annually, the Trimmed Mean CPI advanced 3.6% YoY during the same period.
AUD/USD reaction to Australia's Consumer Price Index data
The Australian Dollar (AUD) sees fresh buying following Australia's CPI report. The AUD/USD pair is up 0.13% on the day to trade at 0.7172 at the press time.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.06% | -0.09% | 0.18% | 0.26% | -0.15% | 0.05% | 0.06% | |
| EUR | -0.06% | -0.15% | 0.04% | 0.20% | -0.19% | 0.00% | 0.01% | |
| GBP | 0.09% | 0.15% | 0.11% | 0.36% | -0.03% | 0.15% | 0.18% | |
| JPY | -0.18% | -0.04% | -0.11% | 0.13% | -0.24% | -0.03% | -0.04% | |
| CAD | -0.26% | -0.20% | -0.36% | -0.13% | -0.36% | -0.16% | -0.19% | |
| AUD | 0.15% | 0.19% | 0.03% | 0.24% | 0.36% | 0.20% | 0.21% | |
| NZD | -0.05% | -0.01% | -0.15% | 0.03% | 0.16% | -0.20% | 0.00% | |
| CHF | -0.06% | -0.01% | -0.18% | 0.04% | 0.19% | -0.21% | -0.01% |
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).
This section below was published on August 25 at 22:30 GMT on Tuesday as a preview of Australia’s CPI inflation report.
- Australian Consumer Price Index seen easing in July.
- The Reserve Bank of Australia will focus on the Trimmed Mean CPI.
- The Australian Dollar aims to extend its latest rally vs the Greenback.
The Australian Bureau of Statistics (ABS) will publish the July Consumer Price Index (CPI) on Wednesday at 01:30 GMT. The report is expected to show that inflation rose 3.2% from a year earlier, easing from the 3.8% posted in June. The monthly CPI, however, is forecast at 0.8% following the -0.1% print from the previous month.
The ABS will also release the Trimmed Mean CPI, the Reserve Bank of Australia’s (RBA) favorite inflation gauge. The annual figure is expected to print at 3.5%, slightly lower than the previous 3.6%, while the monthly Trimmed Mean CPI is forecast to remain unchanged at 0.3%.
Ahead of the announcement, the Australian Dollar (AUD) trades a handful of pips below a multi-month high of 0.7180 against the US Dollar (USD), as the latter weakens amid geopolitical turmoil.
What to expect from Australia’s inflation rate data?
Inflation data is a critical factor in the RBA’s monetary policy decisions and is also related to geopolitical turmoil: the war in the Middle East is, no doubt, the primary source of mounting price pressures across the globe. And it is out of the RBA’s control.
“Members noted that higher energy prices and strong demand for goods used to develop AI services were adding to inflationary pressures in some economies. While core measures of consumer price inflation had not yet risen significantly following the onset of the Middle East conflict, members discussed the potential for these and other global developments to generate a more pronounced inflationary impulse. If so, this could push up Australian import prices and, in turn, consumer prices,” the minutes of the August monetary policy decision state.
Members also noted that inflation in Australia remained well above target, even after easing unexpectedly in year-ended terms in the June quarter, and expected trimmed mean inflation to remain above 3% until mid-2027.
The Board decided to leave the Official Cash Rate (OCR) unchanged at 4.35% after debating whether a fourth rate hike this year was necessary.
With that in mind, the upcoming inflation data would shape the market’s view on the upcoming monetary policy decision, and the Aussie will move in consequence. Annual Australian CPI peaked at 4.6% YoY in March. The anticipated reading of 3.2% should cool hopes of additional interest rate hikes in the near future, negatively affecting the Aussie.
A reading between the expected 3.2% and the previous 3.8% would be worrisome and raise the odds of additional hikes, while a reading above 3.8% would trigger panic. Market players will rush to bet on rate hikes and temporarily push the AUD higher, yet once the dust settles, the discouraging figure should play against the Australian currency.
Additionally, it is worth noting that, in the near term, Oil prices are retreating amid fresh hopes the US and Iran could resume negotiations. Market players are taking the headlines with a pinch of salt, but some relief is clear across financial boards.
How could the Consumer Price Index report affect AUD/USD?
As previously mentioned, inflation is expected to have eased further in July and approach the RBA’s range goal of 2% to 3%. Such a reading should have a limited, yet negative impact on the AUD. Ahead of the announcement, the AUD/USD pair hovers around 0.7150.
Valeria Bednarik, FXStreet Chief Analyst, notes: “From a technical point of view, the AUD/USD is bullish, although losing momentum. Still, technical readings in the daily chart suggest that buyers hold the grip despite the ongoing pause. The pair develops above all bullish moving averages, with the 20-day Simple Moving Average (SMA) about to cross above the 100-day SMA, both around 0.7070, providing a solid base and hinting at higher highs ahead. The same chart shows, however, technical indicators lack directional strength while holding well into positive territory.”
Bednarik adds: “The AUD/USD pair should take the 0.7080 peak to accelerate north, in which case, the next relevant level to watch is the 0.7130 price zone. Near-term support lies at 0.7135, ahead of the firmer one mentioned above around 0.7070. Should the latter give up, speculative interest could push the pair towards 0.7000 before buyers attempt to retake control.”
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.
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Next release: Wed Aug 26, 2026 01:30
Frequency: Monthly
Consensus: 3.2%
Previous: 3.8%
Source: Australian Bureau of Statistics
- AUD/USD scales higher for the second straight day amid a combination of supporting factors.
- The Australian CPI keeps RBA rate hike bets on the table and provides a modest lift to the AUD.
- The USD consolidates amid Iran diplomacy hopes and sliding US bond yields, ahead of US PCE.
The AUD/USD pair attracts buyers for the second straight day and climbs to the 0.7170 area following the release of Australian consumer inflation figures during the Asian session on Wednesday. Spot prices remain close to the highest level since early June, touched last Friday, as traders now look to the US Personal Consumption Expenditures (PCE) Price Index for a fresh impetus.
The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) rose by 3.5% year-over-year (YoY) in July, down from the 3.8% increase recorded in the previous month. The reading, however, was higher than the 3.2% consensus estimate and left the door open for further policy tightening by the Reserve Bank of Australia (RBA), which, in turn, provides a modest lift to the Aussie.
The US Dollar (USD), on the other hand, struggles to attract any meaningful buyers amid diminishing odds for an immediate rate hike by the US Federal Reserve (Fed), declining US bond yields and US-Iran diplomacy hopes. Investors, however, might opt to wait for the release of the US PCE for more cues about the Fed's future policy path before placing fresh directional bets on the USD and the AUD/USD pair.
Tamer July US inflation data had shifted market expectations toward a policy hold at the September 15–16 meeting. Adding to this, a CNBC report showed on Monday that the US Treasury could use nearly $1 trillion to help fund the increased buybacks of longer-term bonds announced last week. Furthermore, falling oil prices ease inflation fears, leading to a further fall in US bond yields and undermining the USD.
The aforementioned fundamental backdrop seems tilted firmly in favor of AUD/USD bulls and backs the case for a further near-term appreciating move. Meanwhile, any corrective pullback is more likely to be bought into and remain cushioned.
AUD/USD 4-hour chart
Technical Analysis
The AUD/USD holds above the 100-period Simple Moving Average (SMA) on the 4-hour chart, at 0.7085, which suggests a constructive near-term bias. On the downside, immediate support is located at the 100-period SMA near 0.7085, where buyers are likely to defend the broader upswing. The pair would likely remain bid as long as it sustains above 0.7085, keeping the focus on continuation of the current recovery phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Consumer Price Index (YoY)
The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Last release: Wed Aug 26, 2026 01:30
Frequency: Monthly
Actual: 3.5%
Consensus: 3.2%
Previous: 3.8%
Source: Australian Bureau of Statistics
- WTI falls as Iran and Oman discussed establishing a joint maritime corridor in the Strait of Hormuz.
- Pakistan and Qatar continue regional diplomatic and mediation efforts to de-escalate tensions.
- Downward pressure built after Washington refrained from imposing secondary sanctions on Iran's trading partners.
West Texas Intermediate (WTI) oil price extends its losses for the third consecutive day, trading around $80.10 per barrel during the Asian hours on Wednesday. Crude oil prices have declined following reports that Iran and Oman discussed establishing a temporary joint maritime corridor in the Strait of Hormuz.
Technical talks between the two nations are set to continue as they work toward a permanent arrangement. This future corridor is expected to cover the administration of the strait, information-sharing mechanisms, traffic management, and the provision of maritime and security services.
Regional diplomatic efforts are also gaining momentum alongside these maritime discussions. Pakistan's army chief recently traveled to Tehran to back ongoing diplomatic initiatives, while Qatar confirmed that it is actively continuing its mediation efforts.
Additionally, oil prices have faced downward pressure this week due to shifting market expectations regarding US foreign policy. Washington's latest measures to escalate economic pressure on Iran proved less aggressive than anticipated, as the US stopped short of imposing secondary sanctions on Iran's trading partners.
However, according to TD Securities, "crude flows remain extremely constrained, and the product market continues to tighten with little respite on the horizon," underscoring a worsening supply backdrop that continues to support a more constructive stance on Brent.
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.
- USD/CAD attracts some dip-buyers as falling crude oil prices undermine the Loonie.
- The US-Canada trade war also weighs on the CAD, though a softer USD caps the pair.
- Traders look to the US PCE data for cues about the Fed’s rate path and some impetus.
The USD/CAD pair edges higher during the Asian session on Wednesday, though it remains confined within the previous day’s range. Spot prices currently trade around mid-1.3800s as traders now look to the US Personal Consumption Expenditures (PCE) Price Index for some meaningful impetus.
The crucial US inflation data will be looked upon for more cues about the Federal Reserve's (Fed) future policy path, which, in turn, should provide some meaningful impetus to the US Dollar (USD). In the meantime, diminishing odds for an immediate rate hike by the Fed, along with declining US bond yields and US-Iran diplomacy hopes, keep USD bulls on the defensive and act as a headwind for the USD/CAD pair.
Tamer July US inflation data cooled expectations for near-term Fed tightening and shifted market expectations toward a policy hold at the upcoming September 15–16 meeting. A CNBC report from Monday said that the US Treasury could use nearly $1 trillion to help fund the increased buybacks of longer-term bonds announced last week. This leads to a further decline in US bond yields and weighs on the USD.
Meanwhile, the US offered Iran sanctions relief and an end to the naval blockade in exchange for reopening the Strait of Hormuz and halting attacks carried out by its regional proxies. This, in turn, fuels optimism over a diplomatic resolution to end a six-month-old US-Iran war and drags crude oil prices to a two-week low. Apart from this, the deepening US-Canada trade war undermines the commodity-linked Loonie.
In the latest development, Canada announced new tariffs on US goods in retaliation to Washington's 50% tariffs on $20bn worth of Canadian goods. The mixed fundamental backdrop, however, warrants some caution before positioning for an extension of the USD/CAD pair's recent recovery move from the 1.3730 area, or a three-month low, touched last Friday.
USD/CAD 4-hour chart
Technical Analysis
The USD/CAD pair keeps a bearish near-term tone as it holds beneath the 100-period Simple Moving Average (SMA) on the 4-hour chart, at 1.3912. Traders may continue to treat the said barrier as a selling area until spot prices convincingly advance above this moving average to ease the current downside bias and open the door to a more constructive phase.
(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.
On Wednesday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.7829 compared to the previous day's fix of 6.7852 and 6.7166 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.
- EUR/USD holds steady around 1.1675 in Wednesday’s early Asian session.
- US Treasury buybacks could weigh on the US Dollar; traders brace for the US PCE data for fresh impetus.
- US threatened severe sanctions against countries with economic ties to Iran.
The EUR/USD pair flatlines near 1.1675 during the early Asian trading hours on Wednesday. The US Treasury's decision to expand its long-term bond buyback program could weigh on the US Dollar (USD) against the Euro (EUR). Traders await the release of US Personal Consumption Expenditures (PCE) Price Index data, due late Wednesday.
US Treasury Secretary Scott Bessent said last week that the government could increase bond buybacks beyond $4 billion, a day after the department unveiled plans to double buybacks of longer-dated securities. CNBC reported earlier on Monday that Bessent could tap the department's near $1 trillion General Account to help fund bond buybacks, instead of issuing short-term bills.
"Lower bond yields at the long end won’t fix the debt problem. Longer term, it could make it worse. The government’s debt burden would become even more sensitive to changes in the Fed’s policy rate,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
However, escalating tensions in the Middle East could boost safe-haven flows, supporting the Greenback. The US threatened to impose severe sanctions against any country or entity maintaining economic ties with Iran. Meanwhile, Tehran vowed retaliation against any country that took part in the US-led isolation campaign.
Euro support underpinned by yield spreads but upside seen as limited
Strategists at Scotiabank note that the “recent recovery in yield spreads has provided fundamental support to the Euro,” helping to underpin EUR performance. However, they caution that they “see little scope for additional near-term strength as spot currently trades with a slight premium to our narrow fair value estimate at 1.1622,” suggesting the currency may struggle to extend gains meaningfully from current levels.
Technical Analysis: EUR/USD maintains a positive outlook amid overbought conditions
In the daily chart, EUR/USD holds a bullish near-term bias as spot remains above the 100-day simple moving average (SMA) and the Bollinger middle band. Price is edging toward the Bollinger upper band resistance, while the Relative Strength Index (14) around 70 signals overbought conditions that could temper immediate upside, even as the broader structure stays supported.
On the downside, initial support is located in the 1.1580/1.1575 area, where the Bollinger middle band and the 100-day SMA cluster to reinforce an underlying floor, ahead of a deeper structural level at the Bollinger lower band near 1.1456. On the topside, a clear break above the Bollinger upper band resistance at 1.1708 would reopen the path for further gains, though stretched momentum suggests that rallies toward this barrier may attract profit-taking.
(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.
Canada said that it will implement 50% retaliatory tariffs on $20bn worth of US goods, following through on Prime Minister Mark Carney’s vow to match US President Donald Trump’s duties “dollar for dollar,” the Guardian reported.
The Canadian government said in a statement that new measure will take effect from September 8 and will impose duties of 15%, 25% and 50% across 700 products.
"This is an unprecedented challenge imposed on Canada, but Canada will meet the moment," said Canadian Finance Minister François-Philippe Champagne.
On Monday, Trump stated that he will ratchet up tariffs on Canada-made cars and auto parts in January.
Market reaction
At the time of writing, the USD/CAD pair is up 0.03% on the day at 1.3842.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Iranian Foreign Minister Abbas Araghchi and his Omani counterpart Badr Albusaidi discussed an “interim framework” aimed at resuming shipping through the Strait of Hormuz, Bloomberg reported on Tuesday.
According to the statement, the initiative seeks to establish a “temporary joint maritime corridor” and project for mine clearance to restore safe navigation through the critical waterway.
Iranian Deputy Foreign Minister Kazem Gharibabadi said that Iran and Oman will hold further talks to “negotiate a new permanent route within 30 to 60 days” for shipping through the vital waterway, without specifying when the next phase of discussions will begin.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is down 4.71% on the day at $80.60.
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.
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