Forex News
- The Reserve Bank of Australia is set to hike the interest rate by 25 bps to 3.85% in February.
- RBA Governor Bullock’s words and updated economic forecasts could offer hints on future rate hikes.
- The Australian Dollar braces for intense volatility on the RBA policy announcements.
The Reserve Bank of Australia (RBA) is widely expected to raise the Official Cash Rate (OCR) to 3.85% from 3.6% after concluding its first monetary policy meeting of 2026.
The decision will be announced on Tuesday at 03:30 GMT, accompanied by the Monetary Policy Statement (MPS) and the quarterly economic forecasts, followed by RBA Governor Michele Bullock’s press conference at 04:30 GMT.
The Australian Dollar (AUD) is set to rock in reaction to the RBA policy announcement and updated economic projections.
RBA is set to break the global easing trend
The RBA is on track to deliver its first interest rate hike in more than two years when it meets on Tuesday for its February monetary policy meeting, ditching the global easing trend in an attempt to curb the rising inflationary pressures.
During the press conference following the December monetary policy decision, Governor Michele Bullock explicitly said, “the Board will do what it needs to do to get inflation down,” adding that “If data suggests inflation is not slowing, that will be considered at the Feb board meeting.”
Data from the Australian Bureau of Statistics (ABS) showed last Wednesday that the monthly Consumer Price Index (CPI) leaped to 3.8% in December from 3.4% in November and above forecasts of a 3.6% rise.
The trimmed mean CPI, the RBA’s closely watched measure of core inflation, rose 0.9% quarterly in the fourth quarter, beating the market forecasts of a 0.8% increase.
Following the hot inflation numbers, money markets implied a 73% probability of a rate hike, compared with 60% previously, according to Reuters.
Meanwhile, Australia’s big four banks, including the ANZ, Westpac, Commonwealth Bank of Australia and the National Australia Bank (NAB), altered their call, forecasting a quarter-point RBA rate hike in February.
Another economic indicator backing the expected rate lift-off was the Australian labor data. On January 22, the ABS said that the Unemployment Rate unexpectedly dropped to 4.1%, the lowest level since May, from 4.3%. Net employment jumped by 65.2K in December from -28.7K in November.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD appears exposed to two-way risks against the US Dollar (USD) in the lead-up to the RBA showdown.
AUD/USD could snap the corrective trend and resume its uptrend if the RBA Governor Bullock’s comments and the updated economic forecasts suggest that more rate hikes remain on the table in the coming months.
Conversely, the Aussie pair could stretch its recent downtrend if RBA Governor Bullock plays down expectations of further rate hikes amid a potentially stable inflation projection.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“AUD/USD is trading under the 0.7000 threshold ahead of the RBA rate call, holding its correction from a three-year peak of 0.7094 set on Thursday. The 14-day Relative Strength Index (RSI) has fallen sharply from the overbought region to currently test the 60 level, suggesting that the upward bias still remains intact.”
“The Aussie pair could reverse course and initiate a fresh uptrend toward the 0.7050 psychological level on a hawkish RBA rate hike. The next relevant resistance levels are aligned at the 2026 high of 0.7094 and the February 2023 high of 0.7158. Alternatively, the pair could challenge the 0.6900 area if the RBA disappoints the hawks. A firm break below that level will unleash additional downside toward the 0.6850 psychological barrier. The last line of defense for buyers is seen at the 0.6800 round figure,” Dhwani adds.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Tuesday at 6.9608 compared to the previous day's fix of 6.9695 and 6.9598 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.
- WTI attracts sellers for the second straight day on Tuesday and hangs near a one-week low.
- Hopes for US-Iran nuclear talks ease supply disruption concerns and weigh on Oil prices.
- A surge in Venezuelan oil exports and the recent USD bounce back the case for further slide.
West Texas Intermediate (WTI) US Crude Oil prices struggle to capitalize on the previous day's modest bounce from the $61.20 area, or a one-week trough, and attract some sellers for the second straight day on Tuesday. The commodity currently trades around the $61.75 region, down 0.40% for the day, and seems vulnerable to slide further.
Signs of de-escalation of tensions between the US and Iran, over the latter's nuclear programme, ease market concerns about a military confrontation and supply disruption fears. In fact, officials from both countries told Reuters that Iran and the US will resume nuclear talks on Friday. This, in turn, led to a bearish gap opening on Monday and continues to exert some downward pressure on Crude Oil prices.
Meanwhile, forecasts of milder weather in the US turn out to be another bearish development for the black liquid amid the recent US Dollar (USD) recovery from a four-year low. US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve (Fed) chair tempered hopes for more aggressive rate cuts and provided a goodish lift to the buck, which undermines the USD-denominated commodity.
Moreover, a surge in Venezuelan oil exports to approximately 800K barrels per day in January, from 498K barrels per day in the previous month, adds to worries about a major supply glut. This, in turn, validates the near-term negative outlook for Crude Oil prices and backs the case for a further retracement slide from its highest level since August 2025, around the $66.25 area, touched last week.
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.
- Gold price rebounds to around $4,820 in Tuesday’s early Asian session.
- The CME Group over the weekend again raised margin requirements for the two metals futures contracts.
- US officials said Iran is ready to meet and negotiate a deal.
Gold price (XAU/USD) recovers some lost ground to near $4,820 during the early Asian session on Tuesday. The precious metal edges higher following a historic market rout. However, the upside in the near term might be limited, as US President Donald Trump nominated Kevin Warsh as the next Federal Reserve (Fed) chair.
The nomination of Warsh to lead the US central bank has raised expectations of a more hawkish stance. Markets anticipate that Warsh may lean toward a smaller Fed balance sheet and hold the interest rate higher for longer, which typically strengthens the US Dollar (USD) and reduces the appeal of non-yielding gold.
The Chicago Mercantile Exchange Group (CME), the world's leading and most diverse derivatives marketplace, raised margin requirements for gold and silver over the weekend. This action forced many leveraged traders to sell their positions immediately to cover costs, exerting some selling pressure on the yellow metal.
The US and Iran may hold diplomatic talks in Istanbul later on Friday as Trump weighs a possible military strike on the Islamic Republic. Traders will closely monitor the developments surrounding negotiations. Any signs of escalating tensions between the US and Iran could boost traditional safe-haven assets such as Gold in the near term.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Japan’s Finance Minister Satsuki Katayama said on Tuesday that she will continue to closely coordinate with US authorities as needed, based on a joint Japan and US statement issued in September last year, and respond appropriately.
Key quotes
Will not comment on no foreign exchange intervention conducted.
Prime Minister Takaichi discussed forex benefits as general fact.
Prime Minister Takaichi did not emphasize benefits of weak yen.
Will not comment on specific forex levels.
We will continue to closely coordinate with U.S. authorities as needed, based on a joint Japan and United States statement issued in September last year, and respond appropriately.
Regularly coordinate with United States authorities at various levels.
Takaichi discussed general textbook facts when she spoke about weak yen benefits.
Closely communicating with US Bessent.
Expecting excess of 4.5 trillion yen from currency reserves in this fiscal year.
Market reaction
As of writing, the USD/JPY pair is down 0.07% on the day at 155.50.
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.
US President Donald Trump said he will slash tariffs on India to 18% after Prime Minister Narendra Modi agreed to stop buying Russian oil, Bloomberg reported on Monday.
Trump added that India will also “move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO” as well as purchase “over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products.”
Market reaction
As of writing, the USD/INR pair is down 1.39% on the day at 90.61.
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.
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