Forex News
- Australian Dollar holds losses after China’s RatingDog Services PMI declined to 52.0 in December from 52.1 prior.
- The AUD may find support as expectations grow for interest rate hikes by the Reserve Bank of Australia.
- The US Dollar strengthens on safe-haven demand amid renewed geopolitical risks after the US captured Venezuelan President Nicolas Maduro.
The Australian Dollar (AUD) holds losses against the US Dollar (USD) following the release of China’s RatingDog Services Purchasing Managers’ Index (PMI) on Monday, which declined to 52.0 in December from 52.1 in November. RatingDog reported last week that Manufacturing PMI climbed to 50.1 in December from 49.9 in November. It is important to note that any change in the Chinese economy could impact the AUD as China and Australia are close trading partners.
The AUD could gain support as expectations build for interest rate hikes by the Reserve Bank of Australia (RBA). Traders await Australia’s Q4 CPI report due on January 28, with analysts noting that a stronger-than-expected core inflation reading could prompt a rate hike at the RBA’s February 3 meeting. RBA Governor Michele Bullock said earlier that although the board did not explicitly consider a rate hike, it discussed the conditions under which interest rates might need to increase in 2026.
The AUD/USD pair depreciates as the US Dollar (USD) strengthens on safe-haven demand, driven by a renewed rise in geopolitical risks following the United States’ (US) capture of Venezuelan President Nicolas Maduro.
US Dollar rises amid US-Venezuelan tensions
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground and trading around 98.60 at the time of writing. ISM Manufacturing PMI data will be eyed later in the day.
- CNN reported over the weekend that the US President Donald Trump administration launched a “large-scale strike against Venezuela” and detained President Maduro to face charges, without congressional approval. Trump said the US would administer Venezuela until a safe, orderly, and judicious transition is achieved.
- The Guardian reported on Monday that President Trump warned Washington could launch a new military intervention if Venezuela’s interim president, Delcy Rodríguez, fails to meet US demands. He also made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
- Traders expect two additional Federal Reserve rate cuts in 2026. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
- Federal Open Market Committee (FOMC) December Meeting Minutes suggested last week that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening labor market.
- China’s official Manufacturing Purchasing Managers' Index (PMI), which rose to 50.1 in December, compared to 49.2 in the previous reading. The reading came in above the market consensus of 49.2 in the reported month. The NBS Non-Manufacturing PMI climbed to 50.2 in December versus November’s 49.5 figure. The market forecast was for a 49.8 print.
- The RBA December Meeting Minutes indicated that policymakers stand ready to tighten policy if inflation fails to ease as expected, placing increased focus on the Q4 CPI report due January 28. Analysts note that a stronger-than-expected Q4 core inflation reading could trigger a rate hike at the RBA’s February 3 meeting.
- Australia’s headline inflation rose to 3.8% in October 2025 from 3.6% in September, remaining above the RBA’s 2–3% target range. As a result, markets are increasingly pricing in a rate hike as early as February 2026, with both the Commonwealth Bank of Australia and National Australia Bank projecting a rise to 3.85% at the RBA’s first policy meeting of the year. Consumer Inflation Expectations rose to 4.7% in December from November’s three-month low of 4.5%.
Australian Dollar hovers around nine-day EMA
AUD/USD is trading around 0.6680 on Monday. The technical analysis of the daily chart indicates that the pair hovers around the lower boundary of the ascending channel pattern. Further directions would offer a clear directional bias. The 14-day Relative Strength Index (RSI) at 59.60 suggests bullish momentum, with room for further upside before overbought conditions emerge.
The AUD/USD pair is testing the immediate barrier at the nine-day EMA of 0.6681. A break above this level would support the pair to test the psychological level of 0.6700, followed by 0.6727, the highest level since October 2024, reached on December 29. Further gains could allow the pair to approach the upper boundary of the ascending channel near 0.6810.
On the downside, the AUD/USD pair tests the lower ascending channel boundary around 0.6680. A break below the channel could expose the AUD/USD pair to the area around the six-month low near 0.6414, recorded on August 21.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | 0.30% | 0.19% | 0.24% | 0.30% | 0.23% | 0.30% | |
| EUR | -0.37% | -0.08% | -0.15% | -0.13% | -0.08% | -0.11% | -0.08% | |
| GBP | -0.30% | 0.08% | -0.11% | -0.05% | 0.00% | -0.06% | 0.00% | |
| JPY | -0.19% | 0.15% | 0.11% | 0.05% | 0.10% | 0.04% | 0.10% | |
| CAD | -0.24% | 0.13% | 0.05% | -0.05% | 0.05% | -0.01% | 0.05% | |
| AUD | -0.30% | 0.08% | -0.00% | -0.10% | -0.05% | -0.06% | 0.00% | |
| NZD | -0.23% | 0.11% | 0.06% | -0.04% | 0.00% | 0.06% | 0.06% | |
| CHF | -0.30% | 0.08% | -0.00% | -0.10% | -0.05% | -0.00% | -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 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).
Economic Indicator
RatingDog Services PMI
The RatingDog Services Purchasing Managers Index (PMI), released on a monthly basis by Caixin Insight Group and S&P Global, is a leading indicator gauging business activity in China’s services sector. The data is derived from surveys of senior executives at both private-sector and state-owned companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for CNY.
Read more.Last release: Mon Jan 05, 2026 01:45
Frequency: Monthly
Actual: 52
Consensus: -
Previous: 52.1
Source: IHS Markit
- US Dollar Index appreciates as safe-haven demand increases on renewed geopolitical risks.
- US captured Venezuelan President Nicolas Maduro, with Trump saying Washington would oversee a safe, orderly transition.
- Traders await the ISM Manufacturing PMI data due later in the North American session.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its gains for the second successive session and trading around 98.60 during the Asian hours on Monday. Traders will likely watch ISM Manufacturing PMI data due later in the day.
The US Dollar strengthens on safe-haven demand, which could be attributed to the renewed geopolitical tensions following the United States’ (US) capture of Venezuelan President Nicolas Maduro.
CNN reported over the weekend that the US President Donald Trump administration launched a “large-scale strike against Venezuela” and detained President Maduro to face charges, without congressional approval. Trump said the US would administer Venezuela until a safe, orderly, and judicious transition is achieved.
The Guardian reported on Monday that President Trump warned Washington could launch a new military intervention if Venezuela’s interim president, Delcy Rodríguez, fails to meet US demands. He also made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
Traders anticipate two additional Federal Reserve rate cuts in 2026. The Fed cut rates by 25 basis points (bps) in December 2025, lowering the target range to 3.50%–3.75%. It delivered a cumulative 75 bps of cuts in 2025 amid a cooling labor market and still-elevated inflation.
Federal Open Market Committee (FOMC) December Meeting Minutes suggested that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- Japanese Yen remains on the back foot amid the uncertainty over further BoJ tightening.
- Geopolitical risks benefit the USD’s status as the reserve currency and support USD/JPY.
- The divergent BoJ-Fed policy expectations warrant some caution for aggressive JPY bears.
The Japanese Yen (JPY) drifts lower against a broadly firmer US Dollar (USD) for the fourth straight day and slides to a nearly two-week low during the Asian session on Monday. The Bank of Japan's (BoJ) cautious stance on further policy tightening and the lack of a clear timeline for future interest hikes continue to undermine the JPY. The USD, on the other hand, kicks off the first full trading week of the new year on the front foot in reaction to the US military attack on Venezuela and further contributes to the USD/JPY pair's move up beyond the 157.00 mark.
However, speculations that Japanese authorities would step in to stem further weakness in the domestic currency warrant some caution for aggressive JPY bears. Moreover, prospects for lower interest rates in the US, along with renewed concerns about the Federal Reserve’s (Fed) independence, might keep a lid on the USD and act as a headwind for the USD/JPY pair. Traders might also opt to wait on the sidelines ahead of this week's key US macro releases, scheduled at the start of a new month, for more cues about the Fed's rate-cut path and some meaningful impetus.
Japanese Yen continues with its relative underperformance against a broadly firmer USD
- The Bank of Japan raised its benchmark policy rate to a 30-year high level of 0.75% in December and signaled that the scale of future adjustments will depend on economic conditions. Moreover, informed sources said that the BoJ is expected to start full-fledged talks on implementing an additional rate hike if solid wage increases are confirmed in this year's shunto negotiations in spring.
- Investors, however, appear dissatisfied and remain uncertain about the pace of tightening amid bets that energy subsidies, stable rice prices, and low petroleum costs would keep inflation low into 2026. This continues to undermine the Japanese Yen for the fourth straight day, which, along with a broadly firmer US Dollar, lifts the USD/JPY pair beyond the 157.00 mark on Monday.
- The US Army's Delta Force – an elite special forces unit – attacked Venezuela and captured its President Nicolás Maduro, along with his wife, on Saturday. This comes on top of the lack of progress in the Russia-Ukraine peace deal, unrest in Iran, and issues surrounding Gaza, which keep geopolitical risks in play and benefits the Greenback's status as the global reserve currency.
- The USD touches a two-week high, though the upside seems limited amid speculations that the US Federal Reserve will lower borrowing costs in March and maybe deliver another rate cut later this year. Moreover, worries over the Fed's independence, especially under US President Donald Trump’s administration, could act as a headwind for the buck and keep a lid on the USD/JPY pair.
- Moreover, dovish Fed expectations mark a significant divergence in comparison to expectations of further monetary policy normalisation by the BoJ. Apart from this, intervention speculation should contribute to limiting losses for the lower-yielding JPY. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/JPY pair and positioning for further gains.
- Traders now look forward to important US macroeconomic indicators, scheduled at the start of a new month, for more cues about the Fed's rate-cut path and some meaningful impetus. A rather busy week kicks off with the release of the US ISM Manufacturing PMI later this Monday and culminates with the closely watched US monthly Nonfarm Payrolls report on Friday.
USD/JPY constructive technical setup backs the case for a further appreciating move
The 200-period Simple Moving Average (SMA) continues to rise, and the USD/JPY pair holds above it, reinforcing a bullish bias. The Moving Average Convergence Divergence (MACD) line stands above its Signal line and sits marginally in positive territory, with the histogram edging higher, which hints at strengthening momentum. The 200-period SMA at 156.04 serves as immediate dynamic support.
RSI at 64.83 remains bullish without overbought conditions, reinforcing the upward tone. Momentum would persist while the USD/JPY pair stays above the rising 200-SMA, and a close beneath it could shift the bias toward consolidation.
(The technical analysis of this story was written with the help of an AI tool)
- USD/CHF moves higher to near 0.7930 as the US Dollar gains in a risk-off market sentiment.
- Investors shift to the safe-haven fleet after the US struck Venezuela and captured President Nicolas Maduro.
- The major highlight of Monday will be the Swiss Real Retail Sales and the US ISM Manufacturing PMI data.
The USD/CHF pair trades 0.15% higher to near 0.7930 during the Asian trading session on Monday. The Swiss Franc pair gains as the US Dollar (USD) trades higher amid risk-off market sentiment, following the United States’ (US) strike on Venezuela and the capture of President Nicolas Maduro to face drug-trafficking charges in New York.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises 0.25% to near 98.66.
Investors brace for sheer volatility in the US Dollar this week, with a slew of US data due to be released, notably the Nonfarm Payrolls (NFP) data for December, which would not have been distorted by the government shutdown.
The US NFP data will significantly influence market expectations for the Federal Reserve’s (Fed) monetary policy action in the January meeting, given that rate cuts in 2025 were majorly driven by weakness in the job market.
In Monday’s session, investors will focus on the US ISM Manufacturing Purchasing Managers’ Index (PMI) data for December, which will be published at 15:00 GMT. The ISM Manufacturing PMI is expected to come in mildly higher at 48.3 from 48.2 in November, suggesting that activities have contracted again, but at a slightly moderate pace. A figure below the 50.0 threshold is seen as a decline in business activities.
Meanwhile, the major highlight for the Swiss Franc (CHF), this week, will be the Consumer Price Index (CPI) data for December, which will be released on Thursday. The inflation data will provide cues about whether the Swiss National Bank (SNB) will pivot to policy normalization in the near term.
On Monday, investors will focus on the Real Retail Sales data for November, which will be released at 07:30 GMT. Swiss Real Retail Sales are estimated to have grown at an annualized pace of 2.9%, faster than 2.7% in October.
Economic Indicator
ISM Manufacturing PMI
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US manufacturing sector. The indicator is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that factory activity is generally declining, which is seen as bearish for USD.
Read more.Next release: Mon Jan 05, 2026 15:00
Frequency: Monthly
Consensus: 48.3
Previous: 48.2
Source: Institute for Supply Management
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) provides a reliable outlook on the state of the US manufacturing sector. A reading above 50 suggests that the business activity expanded during the survey period and vice versa. PMIs are considered to be leading indicators and could signal a shift in the economic cycle. Stronger-than-expected prints usually have a positive impact on the USD. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are watched closely as they shine a light on the labour market and inflation.
- USD/CAD rises as safe-haven demand increases on renewed geopolitical risks.
- US captured Venezuelan President Nicolas Maduro, with Trump saying Washington would oversee a safe, orderly transition.
- The commodity-linked CAD may strengthen amid potential gains in Oil prices.
USD/CAD extends its gains for the second successive session, trading around 1.3750 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) strengthens on safe-haven demand, driven by a renewed rise in geopolitical risks following the United States’ (US) capture of Venezuelan President Nicolas Maduro. US President Donald Trump said that the US would oversee Venezuela until a safe, orderly, and judicious transition could take place, per CNN.
The Guardian reported on Monday that President Trump warned Washington could launch a new military intervention if Venezuela’s interim president, Delcy Rodríguez, failed to meet US demands. He also made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
Traders expect two additional Federal Reserve rate cuts in 2026. Federal Open Market Committee (FOMC) December Meeting Minutes suggested that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
The upside of the USD/CAD pair could be capped as the commodity-linked Canadian Dollar (CAD) could strengthen on potential gains in Oil prices. However, West Texas Intermediate (WTI) Oil price remains steady after experiencing volatility, trading around $57.20 per barrel at the time of writing.
Traders evaluated the fallout from the US attack on Venezuela, with markets weighing risks to regional crude supply. However, some analysts expect limited disruption, noting Venezuela produces under 1 million barrels per day, less than 1% of global output.
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.
- Silver price rises to around $75.40 in Monday’s Asian session.
- The US attacked Venezuela on Sunday, boosting safe-haven assets such as Silver.
- The US ISM Manufacturing PMI data is due later on Monday.
Silver price (XAG/USD) jumps to near $75.40 during the Asian trading hours on Monday. The white metal surges as the United States (US) attacks Venezuela, boosting the safe-haven demand. Traders will closely monitor the developments surrounding the US seizure of the Venezuelan leader, as Maduro and his wife will appear in federal court later on Monday.
The US carried out a large-scale military strike against Venezuela on Saturday. US President Donald Trump announced that Venezuelan President Nicolas Maduro and his wife have been captured and flown out of the country.
Trump further stated early Monday that Washington might make a fresh military intervention if Venezuela’s interim president, Delcy Rodríguez, did not accommodate their demands, per the Guardian. The US attack on Venezuela is expected to trigger geopolitical tensions in the region and boost the safe-haven flows, which provide some support to the price of white metal.
Furthermore, growing expectations of further US interest rate cuts might contribute to Silver’s upside. Financial markets are currently pricing in two quarter-point Fed rate cuts this year. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding precious metal.
Traders await the release of the US ISM Manufacturing Purchasing Managers Index (PMI) data for December, which will be published later on Monday. If the report shows a stronger-than-expected outcome, this could lift the US Dollar (USD) and weigh on the USD-denominated commodity price in the near term. On Friday, the US Nonfarm Payrolls data will take center stage.
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.
Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that the Japanese central bank expected to continue raising interest rates if the economy and prices move in line with our forecast.
Key quotes
Bank of Japan expected to continue raising interest rates if economy and prices move in line with our forecast.
Adjusting degree of monetary support will help achieve sustained growth.
Expect Japan's economy to sustain cycle in which wages and prices rise moderately.
Market reaction
The USD/JPY pair is gaining 0.18% on the day to trade at 157.15 at the press time.
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.
- NZD/USD touches a one-month low as the global flight to safety boosts the USD.
- Fed rate cut bets might cap the USD and help limit the downside for spot prices.
- The RBNZ’s hawkish stance also warrants some caution for aggressive NZD bears.
The NZD/USD pair rebounds from its lowest level since early December, around the 0.5725-0.5720 region, touched during the Asian session on Monday, and fills the weekly bearish gap opening. Spot prices, however, struggle to capitalize on the move up and currently trade just above mid-0.5700s, down 0.15% for the day.
The US Dollar (USD) prolongs its recent goodish recovery move from a multi-month trough, touched in December, and climbs to a three-week high amid the global flight to safety, bolstered by rising geopolitical tensions. The US Army's Delta Force, an elite special forces unit, attacked Venezuela and captured its President Nicolás Maduro, along with his wife, on Saturday. This comes on top of the protracted Russia-Ukraine war, unrest in Iran, and issues surrounding Gaza, which benefits the safe-haven buck and acts as a headwind for the risk-sensitive Kiwi.
The upside for the USD, however, seems limited in the wake of speculation about more interest rate cuts by the Federal Reserve (Fed) this year. This marks a significant divergence as compared to the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path. In fact, RBNZ Governor Ann Breman had said that the policy rate is likely to remain at its current level for an extended period if economic conditions unfold as expected. This, in turn, supports the New Zealand Dollar (NZD) and further limits deeper losses for the NZD/USD pair.
Spot prices, meanwhile, move little after data published by RatingDog showed that China's Services Purchasing Managers' Index (PMI) edged lower to 52.0 in December from 52.1 in the previous month. Moving ahead, traders now look forward to the release of the US ISM Manufacturing PMI for some impetus later during the North American session. Furthermore, this week's important US macro data, scheduled at the start of a new month, including the closely-watched Nonfarm Payrolls (NFP) report, will play a key role in influencing the USD price dynamics. Apart from this, geopolitical developments would drive the NZD/USD 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.
China's Services Purchasing Managers' Index (PMI) declines to 52.0 in December from 52.1 in November, the latest data published by RatingDog showed on Monday.
AUD/USD reaction to China’s Services PMI
The Chinese proxy, the Australian Dollar (AUD), remains weak following the Chinese data, with AUD/USD losing 0.15% on the day to 0.6685, as of writing.
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.
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