Forex News
- The Japanese Yen retains bullish bias as BoJ rate hike bets offset dismal Household Spending data.
- Dovish Fed expectations fail to assist the USD in attracting buyers and keep a lid on the USD/JPY pair.
- Traders keenly await the US PCE Price Index for Fed rate-cut cues and a fresh directional impetus.
The Japanese Yen (JPY) extends its sideways consolidative price move through the Asian session on Friday, though the broader fundamental backdrop seems tilted in favor of bullish traders. Data released earlier today showed that Household Spending in Japan unexpectedly fell at the fastest pace in nearly two years in October. The JPY, however, reacts little and continues to draw support from rising bets for an imminent Bank of Japan (BoJ) rate hike, bolstered by Governor Kazuo Ueda's remarks earlier this week. Furthermore, a reflationary push by new Prime Minister Sanae Takaichi keeps Japanese government bonds (JGB) yields elevated and acts as a tailwind for the lower-yielding JPY.
Adding to this, a cautious mood around the equity markets is seen as another factor that lends support to the safe-haven JPY. The US Dollar (USD), on the other hand, struggles to capitalize on the overnight bounce from its lowest level since late October amid the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs next week. This marks a significant divergence in comparison to the BoJ's hawkish outlook and keeps the USD/JPY pair depressed near a three-week low, touched on Thursday. Traders, however, seem reluctant to place aggressive directional bets and opt to move to the sidelines ahead of the release of the US Personal Consumption Expenditure (PCE) Price Index.
Japanese Yen bulls seem hesitant despite rising BoJ rate hike bets
- Data published by Japan's Internal Affairs Ministry showed this Friday that Household Spending fell 2.9% YoY in October 2025, missing market expectations for a 1.0% rise and reversing a 1.8% gain in the prior month. This also marked the first decline since April and the fastest pace of fall since January 2024, raising concerns about the economic outlook.
- The Japanese Yen, however, remains on the front foot amid prospects for further Bank of Japan tightening. In fact, BoJ Governor Kazuo Ueda said on Monday that the central bank would consider the pros and cons of raising the policy rate at the December 18-19 meeting. This was seen as the clearest hint so far of an impending rate hike and underpins the JPY.
- Adding to this, Japanese Prime Minister Sanae Takaichi's massive spending plan, to be funded by new debt issuance, has been a key factor behind the recent sharp rise in government bond yields over the past month. The yield on the benchmark 10-year JGB surged to its strongest level since 2007 on Thursday, while the 20-year reached a level not seen since 1999.
- Furthermore, the 30-year JGB yield hit a record high, resulting in a further narrowing of the rate differential between Japan and other major economies. This raises the risk of the carry trade unwinding and further benefits the JPY. However, rising bond yields mean higher borrowing costs, which fuel concerns about Japan's fiscal situation and keep a lid on the JPY gains.
- The US Dollar staged a modest recovery from a six-week trough on Thursday and drew support from a duo of upbeat US labor market reports. In fact, Global outplacement firm Challenger, Gray & Christmas said that planned job cuts declined 53% to 71,321 in November, from 153,074 in the previous month, which was the highest for an October month since 2003.
- Adding to this, the US Labour Department reported that the number of Americans filing new applications for unemployment benefits decreased by 27,000 to 191,000 in the week ended November 29. This marked the lowest level in more than three years, which eased fears of a sharp deterioration in labor market conditions and prompted some USD short-covering.
- Despite the supportive data, the USD struggles to attract any follow-through buying amid the growing acceptance that the Federal Reserve will lower borrowing costs again at next week's policy meeting. This fails to assist the USD/JPY pair in registering any meaningful recovery from a nearly three-week low set on Thursday and backs the case for further losses.
- Traders, however, seem reluctant and opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index before placing fresh directional bets. The crucial inflation data will play a key role in influencing expectations about the Fed's rate-cut path, which, in turn, will drive the USD and provide some meaningful impetus to the USD/JPY pair.
USD/JPY technical setup backs case for further near-term decline
The recent repeated failures to move back above the 100-hour Simple Moving Average (SMA) and the overnight breakdown below the 155.00 psychological mark favor the USD/JPY bears. Furthermore, technical indicators on hourly charts are holding in negative territory and back the case for a further depreciating move, though neutral oscillators on the daily chart warrant some caution. Hence, any further intraday slide could find some support near the overnight swing low, around mid-154.00s, below which spot prices could accelerate the downfall towards the 154.00 round figure.
On the flip side, any meaningful recovery attempt is likely to confront a stiff barrier near the 155.40 region, or the 100-hour SMA. A sustained strength beyond might trigger a short-covering move and allow the USD/JPY pair to reclaim the 156.00 mark. Some follow-through buying should pave the way for a further move up to the next relevant hurdle near the 156.60-156.65 region en route to the 157.00 round figure.
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.
- Silver price recovers as the Fed is expected to cut interest rates next week.
- Dovish Fed bets have been prompted by downside US employment risks.
- Fed’s Powell stated in the October policy meeting that the December rate cut is far from a foregone conclusion.
Silver price (XAG/USD) trades 0.5% higher to near $57.50 during the Asian trading session on Friday. The white metal rises after regaining ground, following a correction move to near $56.50 from the all-time high of $58.90.
The precious metal bounces back as traders are increasingly confident that the Federal Reserve (Fed) will cut interest rates in the monetary policy meeting next week. Lower interest rates by the Fed bode well for non-yielding assets, such as Silver.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
Upbeat Fed interest rate cut speculation is contrary to what Chairman Jerome Powell stated in October’s monetary policy press conference. “An interest rate cut in the December meeting is far from a foregone conclusion,” Powell said.
Weak United States (US) job market conditions have seldom contributed to firm Fed dovish expectations. The US ADP reported on Thursday that the private sector shed 32K jobs in November, while it was expected to add 5K fresh workers.
Meanwhile, several Federal Open Market Committee (FOMC) officials have supported the need to loosen the monetary policy further, citing downside labor market risks.
Silver technical analysis
XAG/USD trades higher at $57.51 during Friday's Asian trading hours. The 20-day Exponential Moving Average (EMA) climbs to $53.91, underscoring a firm uptrend with price comfortably above trend support. The 20-DAY ema has steepened in recent sessions, reinforcing bullish control.
The 14-day Relative Strength Index (RSI) at 68.48 is elevated, signaling strong momentum near overbought territory.
The bias stays upward while the 20-day EMA rises and continues to underpin pullbacks. RSI remains strong and just below the 70 mark, which could prompt a brief consolidation before the next leg higher. A sustained close above $57.51 would keep topside pressure intact, while dips holding above the average would preserve the advance.
(The technical analysis of this story was written with the help of an AI tool)
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.
- GBP/USD flat lines around 1.3330 in Friday’s Asian session.
- The positive view of the major pair prevails above the 100-day EMA, with a bullish RSI indicator.
- The first upside barrier emerges at 1.3348; the first support level to watch is 1.3300.
The GBP/USD pair trades on a flat note near 1.3330 during the Asian trading hours on Friday. Traders prefer to wait on the sidelines ahead of the key US inflation report later on Friday. The US delayed Personal Consumption Expenditures (PCE) Price Index report for September could offer some hints about the US interest rate path.
Meanwhile, rising bets for a rate cut by the US Federal Reserve (Fed) next week could weigh on the US Dollar (USD) and create a tailwind for the major pair. According to the CME FedWatch Tool, interest rate futures traders are pricing in a nearly 89% chance of a quarter percentage point cut in the Fed funds rate by the Fed at the December meeting, to 3.50%-3.75%, up from just 63% a month ago.
On the other hand, concerns over the UK economic outlook and expectations of faster-than-expected monetary easing by the Bank of England (BoE) might undermine the Cable against the USD. A majority of analysts expect the UK central bank to cut interest rates to 3.75% in December, with markets pricing in a 90% probability.
Technical Analysis:
In the daily chart, GBP/USD trades at 1.3328. The pair holds above the 100-EMA at 1.3300, and the average has flattened after a prior slide, supporting a firmer tone. Price hovers near the upper Bollinger Band at 1.3348 as bands widen, signaling rising volatility and bullish pressure. RSI at 61 shows positive momentum without overbought conditions.
Initial resistance is set by the upper band at 1.3348, where a close higher could extend gains. Immediate support aligns with the 100-EMA at 1.3300, followed by the middle band at 1.3189 and the lower band at 1.3029. Holding above the average would keep the bias higher, while a pullback toward the middle band would cool the advance.
(The technical analysis of this story was written with the help of an AI tool)
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.
- USD/CAD flattens around 1.3950 as investors await the Canadian labor market data for November.
- The Canadian Unemployment Rate is expected to have accelerated to 7%.
- Investors are confident that the Fed will cut interest rates on Wednesday.
The USD/CAD pair trades in a tight range around 1.3950 during the Asian trading session on Friday. The Loonie pair wobbles inside Thursday’s trading range as investors await the Canadian labour market data for November, which will be published at 13:30 GMT.
Investors will pay close attention to the Canadian employment data to get cues about whether the Bank of Canada (BoC) will extend its monetary easing campaign.
The Canadian employment report is expected to show that there were no fresh hiring and lay-offs, following the creation of 66.6K jobs in October. The Unemployment Rate is expected to come in higher at 7% from the prior release of 6.9%.
Signs of weakening Canadian job market conditions would prompt the need of an interest rate cut by the BoC in its monetary policy meeting on Wednesday.
Meanwhile, the US Dollar (USD) trades cautiously amid firm expectations that the Federal Reserve (Fed) will cut interest rates in its monetary policy meeting next week. At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to hold its fresh five-week low around 98.75 posted on Thursday.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
Firm Fed dovish speculation is backed by deteriorating United States (US) labor market conditions, and expectations that inflation-driven by President Donald Trump’s promoted tariff policy is not persistent in nature.
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.
- EUR/USD regains some positive traction following the overnight pullback from a multi-week top.
- The divergent Fed-ECB policy outlooks act as a tailwind for spot prices and favor bullish traders.
- The market focus remains glued to the release of the US PCE Price Index, due later this Friday.
The EUR/USD pair attracts some dip-buyers during the Asian session on Friday and recovers a part of the previous day's retracement slide from the 1.1680 region, or the highest level since October 17. Spot prices currently trade around mid-1.1600s and remain on track to register gains for the second straight week.
Despite the upbeat US labor market reports released on Thursday, the US Dollar (USD) struggles to capitalize on the overnight bounce from a six-week low amid dovish Federal Reserve (Fed) expectations. In fact, traders are now pricing in around an 85% chance that the US central bank will lower borrowing costs again next week. This, along with the underlying bullish sentiment, is seen undermining the Greenback's relative safe-haven status and acting as a tailwind for the EUR/USD pair.
The shared currency, on the other hand, continues to draw support from the growing acceptance that the European Central Bank (ECB) is done cutting interest rates. The expectations were reaffirmed by ECB President Christine Lagarde's comment earlier this week, saying that the central bank expects inflation to stay near its 2% goal in the coming months. This reinforces the argument for the policy hold, which backs the case for a further near-term appreciating move for the EUR/USD pair.
Even from a technical perspective, the emergence of fresh buying on Friday validates this week's breakout through and the 100-day Simple Moving Average (SMA) and reaffirms the positive outlook. Traders, however, might refrain from placing aggressive bets and opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index. The crucial data might provide cues about the Fed's rate-cut path, which should will provide a fresh impetus to the buck and the EUR/USD pair.
US Dollar Price Last 7 Days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.50% | -0.72% | -0.81% | -0.57% | -1.30% | -0.80% | -0.23% | |
| EUR | 0.50% | -0.22% | -0.33% | -0.07% | -0.79% | -0.30% | 0.27% | |
| GBP | 0.72% | 0.22% | -0.10% | 0.15% | -0.57% | -0.09% | 0.49% | |
| JPY | 0.81% | 0.33% | 0.10% | 0.24% | -0.49% | 0.00% | 0.58% | |
| CAD | 0.57% | 0.07% | -0.15% | -0.24% | -0.74% | -0.26% | 0.34% | |
| AUD | 1.30% | 0.79% | 0.57% | 0.49% | 0.74% | 0.49% | 1.08% | |
| NZD | 0.80% | 0.30% | 0.09% | -0.00% | 0.26% | -0.49% | 0.58% | |
| CHF | 0.23% | -0.27% | -0.49% | -0.58% | -0.34% | -1.08% | -0.58% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
- WTI price edges lower to $59.45 in Friday’s early Asian session.
- US crude oil inventories rose by 574,000 barrels last week, EIA noted.
- Rising Fed rate cut bets and geopolitical risks might cap the downside for the WTI price.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $59.45 during the Asian trading hours on Friday. The WTI declines amid an increase in US crude oil stockpiles, signaling excess supply.
Data released by the Energy Information Administration (EIA) on Wednesday showed that crude oil stockpiles in the US for the week ending November 23 increased by 574,000 barrels compared to a rise of 2.774 million barrels in the previous week. This figure came in above the market consensus of -1.9 million barrels.
An imminent quarter-point rate cut by the US Federal Reserve (Fed) could strengthen the outlook for higher energy demand in 2025. Traders are currently pricing in an 89% probability of a quarter-point rate cut next week, according to the CME FedWatch tool, with an expected 89 basis points (bps) of easing by the end of next year. Lower interest rates generally drag the US Dollar (USD) lower and boost the WTI price, as it makes USD-denominated commodities cheaper for foreign buyers.
Furthermore, attacks on Russian oil infrastructure by Ukraine raised the prospect of supply constraints, which could also underpin the WTI price. Ukraine targeted the Druzhba pipeline in Russia’s central Tambov region on Wednesday, according to a Ukrainian military intelligence source.
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.
The Reserve Bank of Australia (RBA) will hold its cash rate at 3.60% at its December next week and keep it steady through 2026, according to the latest Reuters poll.
All 38 economists in the December 1-4 poll expected the Australian central bank to leave its Official Cash Rate (OCR) unchanged at the end of its two-day meeting on December 9.
Survey marked a notable shift in the outlook, with the median now expects the interest rates to remain steady through 2026, compared with anticipation for cuts as recently as last month.
In the November survey, over 60% predicted at least one further reduction by April-June, compared to less than one-third in the recent poll.
Among economists who had a rates forecast until the end of 2026, a strong majority 19 of 33 expect rates to stay unchanged at 3.60%, and 10 forecast at least one cut. The remaining four expected the RBA to hike at least once.
Market reaction
As of writing, the AUD/USD pair is up 0.01% on the day at 0.6615.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
On Friday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 7.0749 compared to the previous day's fix of 7.0733 and 7.0751 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.
- NZD/USD loses ground to near 0.5765 in Friday’s early Asian session.
- Markets are anticipating a 25 basis point interest rate cut from the Fed next week.
- Traders brace for the delayed US PCE inflation data on Friday for fresh impetus.
The NZD/USD pair edges lower to around 0.5765 during the early Asian trading hours on Friday, pressured by the rebound in the US Dollar (USD). Nonetheless, the potential downside for the pair might be limited amid rising bets for a rate cut by the Federal Reserve (Fed) next week. Traders will take more cues from the US delayed Personal Consumption Expenditures (PCE) Price Index report for September, which is due later on Friday.
The US central bank is likely to reduce its key interest rate at its December meeting next week after a cooling labor market and dovish remarks from Fed officials like New York Fed President John Williams and Fed Governor Christopher Waller. Fed funds futures traders are now pricing in nearly an 89% chance of a rate reduction next week, up from 71% probability a week ago, according to the CME FedWatch Tool.
On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) decided to cut its Official Cash Rate (OCR) by a quarter percentage point to 2.25% last week, as widely expected. The New Zealand central bank signaled that future rate changes will depend on the economic and inflation outlook, and analysts believe the rate-cutting cycle is likely finished for now. This, in turn, could provide some support to the New Zealand Dollar (NZD) against the Greenback.
The US delayed PCE inflation data will be in the spotlight later in the day, which could give some insight into the US interest rate path. The headline PCE is expected to show an increase of 2.8% YoY in September, while the core PCE is projected to show a rise of 2.9% during the same period. In case of a hotter-than-expected inflation reading, this could boost the USD and create a headwind for the pair in the near term.
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.
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