Forex News
- NZD/USD gains 0.55% to 0.5652 as the Greenback retreats.
- October Fed hike odds remain at 16% despite elevated inflation.
- NZ CPI could reshape RBNZ tightening expectations ahead of October's meeting.
The New Zealand Dollar ended the week on a higher note against the US Dollar, up 0.55% to 0.5652, as the Greenback weakened amid investors' skepticism about a Fed hike in October despite the US docket featuring red-hot inflation.
NZD/USD closes higher as October Fed hike skepticism shifts attention toward NZ inflation
US data revealed on Friday was mostly ignored by market participants. Even though the Fed revealed that Industrial Production in September grew 0.7% MoM above estimates and August’s 0.1% expansion, the focus was on inflation.
The release of US consumer inflation data, which exceeded estimates of 3.6% at 3.7% YoY, and on the producer front at 6.3% YoY, up a full percentage point from forecasts of 5.3%, did not raise the odds of a Fed October rate increase, as might have been expected.
The probability of a Fed rate hike is 16%, according to Prime Terminal data. Still, this favors further downside in NZD/USD, as US interest rates are 125 basis points higher than in New Zealand.
Several Fed officials, although penciling in two hikes for 2026, with the first having happened a month ago, said patience is needed, implying that a hike in Decembers is most likely than this month. Others, like Cleveland Fed Beth Hammack, have expressed concern that inflation has remained stubbornly high for five and a half years, above the 2% goal.
At the same time, Fed Chair Kevin Warsh disappointed investors by failing to provide guidance on future interest rates during a speech at the IMF forum on Friday, even though he acknowledged the strength of the US economy.
In New Zealand, the economic docket remained light but for the next week, the Trade Balance is expected on October 18, followed by the Consumer Price Index (CPI) for Q3 on a quarterly and yearly basis.
If next week's New Zealand CPI comes hotter than expected, this could prompt investors to fully price in an RBNZ rate hike at the October 28 meeting, with odds at 85% for a hold and 40 basis points of further tightening towards the end of the year.
Of note, for 2027, money markets had priced in 114 basis points of tightening towards the end of the year, reflecting the more hawkish central bank amongst the major currencies.
NZD/USD Price Forecast: Technical outlook
The NZD/USD price action shows that the pair bottomed around 0.5580-0.5600, triggering a rally to an 11-day high of 0.5674 before settling at current levels.
Even though all the daily Simple Moving Averages (SMAs) indicate a bearish bias, the Relative Strength Index (RSI) suggests that momentum is shifting bullishly, an indication that, although the downtrend is in place, we could be witnessing an early stage of a reversal.
If NZD/USD reclaims 0.5750, this could pave the way for a move toward the confluence of the 50- and 100-day SMAs, each at 0.5775-0.5781. This could open the door to challenge the 200-day SMA above the 0.5800 milestone at 0.5838.
For a bearish continuation, the NZD/USD must drop below the October 14 swing ow of 0.5564, towards the 0.5500 mark.
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.
Royal Bank of Canada (RBC) strategis Claire Fan and Abbey Xu expect Canada’s headline Consumer Price Index to remain at 3% year-over-year in September, supported by higher gasoline and furnace Oil prices. They see moderating food inflation and a dip in core CPI to 1.8%, with diffusion indices suggesting inflation pressures remain relatively narrow despite risks from industrial price broadening.
Headline steady, core seen easing
"We expect the headline Consumer Price Index in Canada to hold at 3% year-over-year in September for a third consecutive month."
"Excluding food and energy, core inflation is expected to have edged down to 1.8% in September from 2.1% in August."
"We continue to expect limited pass-through of energy inflation in core components outside of airfares, but will watch transportation categories closely since they are most at risk."
"Our CPI diffusion index— a gauge of the breadth of inflation pressures—hasn’t pointed to problematic broadening of scope so far."
"Still, the same diffusion index for industrial production prices has already pointed to a concerning spread, but there’s a long way to go before price increases get passed down production layers to reach consumer prices on store shelves."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
OCBC strategists Sim Moh Siong and Christopher Wong highlight that Taiwan Dollar (TWD) has extended losses on heavy foreign equity outflows, partly retracing into the Asian close amid talk of CBC leaning against depreciation. They stay somewhat cautious, suggesting any sustained TWD recovery will require improved underlying flows, with CBC smoothing only likely to contain excessive volatility rather than drive a full reversal.
Cautious on Taiwan Dollar
"TWD extended its decline amid continued foreign equity outflows, though losses were partially retraced into the Asian close."
"Foreign investors sold a record TWD302.5bn of Taiwanese equities on Thursday as the global tech selloff deepened. There was market chatter of CBC leaning against the wind, potentially helping to temper the pace of depreciation into Asia close."
"We remain somewhat cautious on TWD, though tentative stabilisation in US equities overnight, alongside softer Treasury yields and USD, may offer some respite."
"Focus will be on whether foreign selling moderates after Thursday’s sharp selloff. A more sustained TWD recovery would likely require some improvement in underlying flows, while CBC smoothing may help contain excessive volatility."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- XAG/USD approaches $57 after plunging toward weekly lows near $55.40.
- Bearish RSI nears oversold territory, reinforcing sellers' short-term control.
- A break below $55 exposes $54.77, $54.39 and eventually $50.
Silver (XAG/USD) price is poised to finish the week with losses after the white metal fell below the $60.00 key support, exacerbating the sell-off that pushed XAG/USD towards a weekly low of $55.38. At the time of writing, Silver exchanges hands near $57.00, down 0.83%.
XAG/USD Price Forecast: Technical Outlook
Silver reverses course, retreating toward $57.00, with the white metal poised to extend its losses below the $55.00 milestone.
Momentum remains bearish as the Relative Strength Index (RSI) extends its downward trajectory and nears oversold territory, implying that bears are in control.
If XAG/USD clears $55.00, the next support is the year-to-date (YTD) low of $54.77. The next stop is the November 13, 2025, high-turned support at $54.39, ahead of diving toward $50.00.
For a bullish reversal, the first supply zone is the October 14 high at $59.37. Once hurdled, the next stop is $60.00, followed by the 100-day Simple Moving Average (SMA) at $63.06, before testing the 50-day SMA at $63.98. A move above the latter opens the path to challenge $65.00.
XAG/USD Price Chart – Daily
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.
- Gold slips near $4,150, heading for a weekly loss.
- US CPI hit 3.7%, while producer inflation surged to 6.3% in September.
- October Fed hike odds fall to 16%, but December remains at 89%.
Gold (XAU/USD) price retreats about 0.10%, trading at $4,163 on Friday, poised for a weekly loss as traders assess recent US inflation data, which, although hotter than foreseen, led investors to trim their hawkish bets for the Federal Open Market Committee (FOMC) October meeting.
XAU/USD struggles near $4,160 as elevated Treasury yields offset reduced Fed tightening expectations
This week, US inflation data was the highlight of the economic docket, with both figures, the Consumer Price Index (CPI) for September rising 3.7% YoY above estimates of 3.6% and up from August’s 3.4%, while the Producer Price Index (PPI) crushed forecasts of 5.3%, rising 6.3% YoY.
Market participants increased the odds of a Fed rate hike this month post-the CPI release, near 60%. However, as the session progressed, most investment banks updated their forecasts, with most confident for a hike in December.
Money markets have priced in a 16% chance of a 25 bps move by the FOMC at the October meeting, but for December, the odds are high at 89%, according to Prime Terminal.
Meanwhile, Fed Chair Kevin Warsh disappointed investors by not providing guidance on future interest rates, though he recognized the strength of the US economy.
Bullion has failed to rally despite investors using it as an inflation hedge, as surging US Treasury yields have undermined the yellow metal.
The US 10-year Treasury yield is gaining three basis points, up to 5.106%, but it has failed to boost the Greenback, amid a scenario of higher rates in the US.
The US Dollar Index (DXY), which measures the buck’s performance against six currencies, is down 0.10% at 101.87.
On the data front, Industrial Production rose 0.7% MoM in September, exceeding estimates of 0.4% and the prior month’s 0.1% expansion.
Next week, the US economic schedule will feature housing data, Initial Jobless Claims, and Flash PMIs, which are closely watched by investors.
XAU/USD technical analysis: Gold remains unable to clear $4,200, dives towards $4,100
Gold continues to trade sideways within the $4,100-$4,200 range and appears to have bottomed near the range low.
Momentum-wise, the Relative Strength Index (RSI) is bearish; there’s a mild positive divergence which could open the door for further upside.
For a bullish reversal, the first resistance for XAU/USD would be $4,200, followed by a test of the 100-day Simple Moving Average (SMA) at $4,242. Above, the 50-day SMA sits at $4,331, followed by the $4,500 mark.
If XAU/USD continues lower, initial support is at $4,100. A decisive break below that level would bring the October 14 low of $4,073 into view, followed by the July 29 cycle low at $3,996 and the July 17 low at $3,959. The yearly low at $3,941 lies below those levels.
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.
Standard Chartered’s Chong Hoon Park expects the Bank of Korea to keep its base rate at 3.00% through October and November, despite a less favourable inflation-growth mix. The report highlights sticky underlying inflation, strong AI- and semiconductor-led growth, and tighter financial conditions after a sharp KOSPI correction. The authors still project two 25bps hikes in 2027, taking the terminal rate to 3.50%.
BoK seen on hold despite risks
"We expect the Bank of Korea (BoK) to keep the base rate unchanged at 3.00% in October and November."
"We continue to forecast a 25bps hike in early 2027, followed by another in H1-2027, taking the terminal rate to 3.50% by end-2027."
"However, we acknowledge the rising risk of a November hike."
"However, given the sharp equity-market correction and the associated tightening in financial conditions, we maintain our base case of a hold in November."
"We will closely watch the October meeting for a shift in the balance of risks."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD struggles to extend gains as hawkish Fed expectations support the US Dollar.
- The pair trades below key daily moving averages, suggesting sellers retain control.
- Momentum indicators show early signs of recovery, but a strong bullish reversal appears uncertain.
EUR/USD struggles to extend its gains on Friday as the US Dollar (USD) steadies after coming under heavy pressure on Thursday. At the time of writing, the pair trades around 1.1230, below an intraday high of 1.1269, but remains on track for its first weekly gain in six weeks.
Euro Price This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.32% | -0.65% | -0.05% | -0.82% | 0.49% | -0.63% | -0.67% | |
| EUR | 0.32% | -0.25% | 0.27% | -0.46% | 0.81% | -0.27% | -0.30% | |
| GBP | 0.65% | 0.25% | 0.46% | -0.21% | 1.06% | -0.02% | -0.07% | |
| JPY | 0.05% | -0.27% | -0.46% | -0.63% | 0.65% | -0.56% | -0.50% | |
| CAD | 0.82% | 0.46% | 0.21% | 0.63% | 1.31% | 0.09% | 0.16% | |
| AUD | -0.49% | -0.81% | -1.06% | -0.65% | -1.31% | -1.07% | -1.09% | |
| NZD | 0.63% | 0.27% | 0.02% | 0.56% | -0.09% | 1.07% | -0.06% | |
| CHF | 0.67% | 0.30% | 0.07% | 0.50% | -0.16% | 1.09% | 0.06% |
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 Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Hawkish Federal Reserve (Fed) expectations keep a floor under the US Dollar after this week’s US inflation data reinforced expectations of another rate hike before year-end. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.90 after touching an intraday low of 101.58, its lowest level since October 1.
Meanwhile, expectations of further European Central Bank (ECB) rate hikes offer limited support to the Euro (EUR), as traders weigh risks to growth alongside France’s fiscal and political concerns.
Nordea turns more constructive on USD as EUR/USD overshoots 2027 target
Strategists at Nordea highlight that "EUR/USD reached our H1 2027 target of 1.12 faster than expected." In response to the quicker-than-anticipated move, they state that "we therefore lower our year-end EUR/USD forecast to 1.10 from 1.14" and now "expect EUR/USD to test 1.08 in H1 2027 before recovering to 1.14 in H2 2027 and 1.20 by end-2028." Nordea underlines that "our baseline remains a strong US economy and two further Fed hikes, with risks skewed to the upside," and concludes that "overall, we remain constructive on the USD relative to the EUR over the next six to nine months."
Technical analysis
On the daily chart, EUR/USD keeps a bearish near-term bias as the pair holds well beneath the 50-day and 100-day simple moving averages (SMAs) at 1.1469 and 1.1470, and the 200-day SMA at 1.1584. Price is also below a dense Fibonacci retracement cluster, with the 23.6% level at 1.1239 leaning as immediate overhead resistance. The Relative Strength Index (RSI) at 38 suggests the pair is recovering from oversold conditions, while the Moving Average Convergence Divergence (MACD) has just turned marginally positive, hinting at waning downside momentum rather than a clear bullish shift.
On the topside, initial resistance appears at the 23.6% Fibonacci retracement at 1.1239, followed by the 38.2% level at 1.1319 and the 50% retracement at 1.1383. Higher up, the 61.8% retracement at 1.1447 is reinforced by the 50-day and 100-day SMAs clustered around 1.1470, while the 78.6% level at 1.1538 and the 200-day SMA at 1.1584 guard the path toward the cycle high at 1.1654. On the downside, the main support remains the structural Fibonacci anchor near 1.1111, where a sustained break would likely extend the broader bearish phase.
(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.
Royal Bank of Canada economists Claire Fan and Abbey Xu assess upcoming Canadian inflation data and the Bank of Canada’s Q3 Business Outlook Survey ahead of the Oct. 28 policy decision. They highlight persistent energy-driven inflation versus a still-soft economy, and expect this contentious balance of risks to keep the Bank of Canada on hold through the rest of 2026.
BoC seen staying uncomfortably on hold
"Canadian inflation data and the Bank of Canada’s Q3 Business Outlook Survey on Monday will be watched closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy."
"These releases will serve as key inputs for the BoC’s next interest rate decision on Oct. 28, as policymakers are wary that high oil prices could spill beyond gasoline prices into non-energy components and/or feed into rising business and consumer inflation expectations."
"Inflation risks, however, must be balanced against a gradually improving economy that remains soft."
"Progress has been choppy—GDP growth is set to slow in the second half of 2026 from the stronger pace in Q2, jobs have declined consecutively in August and September, and the unemployment rate has plateaued around 6.5% over the last three months after falling in the prior year."
"For now, we continue to expect a somewhat contentious trade-off between inflation and growth risks to keep the BoC uncomfortably on hold through the rest of 2026."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Nordea’s research team keeps its Federal Reserve outlook unchanged, expecting one more rate hike this year and another in 2027 as US inflation remains above the 2% target and growth stays strong. The bank argues that elevated long-term Treasury yields mainly reflect robust nominal GDP growth and heavy capital demand, and do not yet look particularly restrictive for the US economy.
Fed path steady with strong data
"Inflation is still clearly above target, and the September CPI shows it moving up, not down."
"Monetary policy still does not look restrictive enough for an economy in this shape."
"Against that backdrop, long-term yields above 5% are not particularly restrictive."
"We keep our Fed forecast unchanged. We still expect one more hike this year and another next year, with the risks tilted to the upside."
"All in all, our view is unchanged. A strong economy and above-target inflation still call for tighter policy. We expect one more hike this year and another next year. Higher long-term yields do not change that call. They mostly reflect the same strong economy that keeps the Fed hiking."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/USD struggles to extend its recovery as the US Dollar stabilises.
- Hot US inflation keeps markets leaning toward another Fed rate hike before year-end.
- Weak employment figures temper RBA rate-hike bets, although further tightening remains possible.
AUD/USD trims some of its earlier gains on Friday as hawkish Federal Reserve (Fed) expectations cushion the downside in the US Dollar (USD) and US Treasury yields following the previous day’s pullback. At the time of writing, the pair trades around 0.6941 after reaching an intraday high of 0.6967, remaining on track for a weekly decline.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.90 after touching an intraday low of 101.58, its lowest level in two weeks. Meanwhile, the benchmark 10-year US Treasury yield recovers toward 5.11% after falling to a three-week low near 5.04% on Thursday.
Treasury yields declined across the curve on Thursday, dragging the US Dollar away from the 18-month high of 102.94 reached earlier this week. The move came as concerns over AI valuations and debt-funded investments triggered a sell-off in equities and drove investors toward government bonds.
However, the Greenback finds some support as hotter-than-expected US inflation data and resilient consumer spending keep expectations tilted toward additional Fed rate hikes.
Despite the strong data, traders still expect the Fed to pause at its October 27-28 meeting. Expectations instead centre on December, with the CME FedWatch Tool showing roughly a 90% probability of a rate hike.
On the Australian side, Thursday’s weaker-than-expected labour market report tempered bets on another Reserve Bank of Australia (RBA) rate increase. Employment fell by 39.3K in September, compared with forecasts for a gain of 20K, while the Unemployment Rate stood at 4.7%.
The figures suggest that higher borrowing costs are weighing on hiring. Markets now expect the central bank to leave rates unchanged at its November 2-3 meeting after delivering four increases this year.
Still, September’s meeting minutes show that the RBA remains open to further tightening, with the Board prepared to raise rates again if needed to meet its inflation and employment goals.
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.
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