Forex News
Federal Reserve (Fed) Vice Chair Philip Jefferson said on Thursday that monetary policy is well positioned to respond to developments but has not prejudged June's policy meeting.
Key quotes
Firmly committed to restoring inflation to 2%.
U.S. remains vulnerable to oil-linked energy shocks.
Has not decided outcome of June FOMC meeting.
Recent US economic activity remains robust.
Inflation outlook risks lean toward upside.
Monetary policy well positioned to react to economy.
Labor market steady with risks skewed to downside. Energy shock a downside risk to growth, a potential inflation driver.
Inflation seen easing later this year as tariff, energy impacts fade.
Market reaction
At the time of writing, the US Dollar Index (DXY) is trading around 99.30, up 0.06% on the day.
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.
- EUR/USD softens to near 1.1620 in Thursday’s early Asian session.
- The US carried out new strikes in Iran against a military site.
- Top ECB officials lay groundwork for June rate hike.
The EUR/USD pair trades in negative territory around 1.1620 during the early Asian session on Thursday. Escalating tensions between the United States (US) and Iran continue to weigh on riskier assets, such as the Euro (EUR), against the US Dollar (USD). The US April Personal Consumption Expenditures (PCE) Price Index inflation report will take center stage later in the day.
Reuters reported on Wednesday that the US military carried out new strikes in Iran targeting a military site that posed a threat to US forces and commercial traffic in the Strait of Hormuz. The source also said that the US military has also intercepted and shot down multiple Iranian drones that posed a similar threat.
Separately, Fars News Agency reported that three explosions were heard east of Bandar Abbas and air defences were activated for several minutes. Signs of rising tensions in the Middle East and a lack of progress in the US-Iran peace deal could provide support for a safe-haven currency such as the Greenback and act as a headwind for the major pair.
On the other hand, hawkish comments from the European Central Bank (ECB) policymakers might help limit the shared currency’s losses. Francois Villeroy de Galhau said on Tuesday that the central bank “will do what is necessary” to keep inflation on target.
Meanwhile, ECB board member Isabel Schnabel stated that the central bank should raise interest rates in June, even if ongoing peace talks with Iran yield a deal, as the conflict has been far longer than projected and high energy prices are spilling into the broader economy.
Financial markets have fully priced in two hikes in the ECB's 2% deposit rate and see a nearly 50% chance of a third move over the next year. Economists are more cautious and see just two rates rise, followed by a cut in mid-2027, a Reuters poll showed.
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.
The US military carried out new strikes in Iran targeting a military site that posed a threat to US forces and commercial traffic in the Strait of Hormuz, Reuters reported on Wednesday.
The official said that the US military has also intercepted and shot down multiple Iranian drones that posed a similar threat. Separately,l Fars News Agency reported that three explosions were heard east of Bandar Abbas and air defences were activated for several minutes
Market reaction
Crude oil prices attract some buyers following this headline. At the time of writing, the West Texas Intermediate (WTI) is up 0.95% on the day at $88.95.
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.
US President Donald Trump said that he won’t be rushed into a deal, warning that Iran’s efforts to outlast him won’t work because he doesn’t “care about the midterms,” CNN reported on Wednesday.
Trump further stated that the Strait of Hormuz will be “open to everybody” and that the US will “watch over it,” adding that those terms are a part of negotiations with Iran.
On Wednesday, US Secretary of State Marco Rubio said the US will give talks with Iran “every chance to succeed.” Rubio added that talks with Iran have made some progress. Trump prefers diplomacy but has other options available if that doesn’t work.
Fars News reported late Wednesday that three explosions were heard east of Bandar Abbas and air defenses were activated for several minutes.
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 holds steady near $4,455 in Thursday’s early Asian session.
- Trump said he won’t be rushed into a deal because he doesn’t “care about the midterms.”
- Traders will closely monitor the US April PCE Price Index inflation data later on Thursday.
Gold price (XAU/USD) trades on a flat note around $4,455 during the early Asian session on Thursday. The precious metal steadies as US-Iran peace negotiations face uncertainties. Traders prefer to wait on the sidelines ahead of the US Core Personal Consumption Expenditures (PCE) Price Index report, which is due later on Thursday.
US President Donald Trump said on Wednesday that he won’t be rushed into a deal, warning that Iran’s efforts to outlast him won’t work because he doesn’t “care about the midterms.” Trump further stated that the Strait of Hormuz will be “open to everybody” and that the US will “watch over it,” adding that those terms are a part of negotiations with Iran.
On Wednesday, US Secretary of State Marco Rubio said the US will give talks with Iran “every chance to succeed.” Rubio added that talks with Iran have made some progress. Trump prefers diplomacy but has other options available if that doesn’t work. Uncertainty over the US-Iran peace deal and the vital Strait of Hormuz could weigh on the Gold price in the near term.
All eyes will be on the release of the US PCE inflation data later in the day. This report might offer some clues about the US interest rate path this year. The headline PCE Price Index is expected to show a rise of 3.8% YoY in April, compared to 3.5% in March. Meanwhile, the core PCE Price Index is projected to show an increase of 3.3% YoY in April, versus 3.2% prior.
Any signs of hotter inflation in the US could reinforce the expectation of the interest rate hike from the US Federal Reserve (Fed) this year. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
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.
- The Yen has clawed back roughly 80% of its post-intervention gains as carry positioning quietly rebuilds.
- BoJ rhetoric continues to fall short of derailing the broader uptrend.
- Thursday brings US PCE and Tokyo CPI, the two key calendar risks for the pair.
The Bank of Japan (BoJ) and Ministry of Finance bought themselves three weeks of breathing room. A combined intervention effort reportedly worth more than $60 billion across late April and early May shoved USD/JPY out of the politically sensitive 160.00 zone, briefly dragging the pair down toward 156.00. The rebound since has been steady, methodical, and almost mathematical. Price now trades around 159.50, leaving roughly 80% of that selloff erased. Carry traders have stitched themselves back into the positioning they were forced out of, with the patience of people who have read this script before.
That patience is the entire story. Nothing about the post-intervention environment fundamentally favors the Yen. The Federal Reserve (Fed) sits at 3.50% to 3.75% while the BoJ holds at 0.75%, leaving a roughly 300 basis point gap that pays carry every single day the pair does not collapse. Until that math shifts, every intervention buys Tokyo time, not direction.
Ueda walks the same tightrope, smaller now
Governor Kazuo Ueda spoke earlier in the session, and the price action since suggests the market was not particularly impressed. The framing problem is now well-rehearsed. April's Tokyo Consumer Price Index (CPI) print came in soft across the board, with the core-core measure slowing to 1.9% YoY against a 2.3% expectation. That single miss has already pushed June rate hike pricing further out, leaving the Governor with a sequencing problem. Jawbone hawkishly enough to discourage another run at 160.00, but not so hawkishly that markets call the bluff if the next CPI print disappoints again.
Carry math wins by default
Strategists have long argued that intervention without policy follow-through is theatre. The price action since early May has done little to contradict that view. Each successive grind higher tells positioning desks the 160.00 handle is back in play, and the Ministry of Finance now faces an uncomfortable question. A second round of intervention at the same scale, with the same half-life, would invite serious doubts about strategic coherence. A smaller round risks looking like cosmetics. A larger round drains reserves materially.
Technicals back the bid
Daily structure has fully reclaimed the post-intervention damage. Price now trades above the 50-period Exponential Moving Average (EMA) near 158.50, with the 200 EMA further below close to 155.50. The Stochastic Relative Strength Index (Stoch RSI) on the daily chart is climbing into the upper half of its range without flashing overbought. A clean break above 160.00 reopens the broader uptrend and forces another intervention decision. A rejection there sets up a retest of 158.50.
Data preview: Thursday owns the calendar
Two prints define the back half of the week. US Personal Consumption Expenditures Price Index (PCE) lands at 12:30 GMT, with core PCE expected at 0.3% MoM and 3.3% YoY. A hot print firms the Dollar, supports the carry, and likely drives the pair through 160.00. A cool print does the opposite and gives the Yen a reason to defend itself organically.
Tokyo CPI follows at 23:30 GMT, with the headline ex-fresh-food measure expected to hold at 1.5% YoY. Another sub-2% print extends the BoJ's next-hike timeline and quietly removes one of the few remaining non-intervention supports under the Yen. A surprise upside print would be the cleanest setup for a Yen rally seen in weeks.
Bias
Above 160.00, the carry trade reasserts cleanly and the political pressure shifts firmly back to Tokyo. Below 158.50, the post-intervention regime begins to creak, but only a cool PCE paired with a hot Tokyo CPI delivers a genuine reversal. Until then, dips remain bids and the path of least resistance stays higher.
USD/JPY daily chart
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.
- The Fed and BoE now sit at the same policy rate, neutralizing the usual rate-differential lever.
- Thursday's PCE print is the loud event, but Friday's Bailey speech carries the asymmetric risk.
- Sterling trades near the 200 EMA on dailies, with Stoch RSI hinting at exhaustion in the slide.
Sterling traders are spending the week parsing the wrong calendar. The pair has drifted from around 1.3500 down toward 1.3400, and the consensus has tied that move to Thursday's US Core Personal Consumption Expenditures Price Index (PCE) print and the wall of Federal Reserve (Fed) speakers in between. The framing is convenient, but it misses what is actually on the table. The Fed's policy rate sits at 3.50-3.75%; the Bank of England (BoE) at 3.75%. Both central banks closed their April meetings with hawkish dissent. Both are absorbing the same energy-import shock out of the Middle East. Whatever rate-differential narrative usually drives the Pound has, for now, gone flat.
A policy mirror nobody is pricing
The Federal Open Market Committee (FOMC) split 8-4 in April, with three members opposing any easing bias and one preferring a cut. The BoE's Monetary Policy Committee (MPC) went 8-1 the same week, with the lone dissent voting to hike. Two committees, same direction of friction, same reluctance to commit. Rate-cut pricing into year-end has narrowed on both sides of the Atlantic, and the spread between the two policy paths is barely worth modelling. If Sterling has been bleeding lower, it is not because the Fed has out-hawked the BoE. It is because the UK runs a deeper energy import bill, and the market has decided that is a Pound problem rather than a Dollar one. Whether that judgement holds is the actual question this week.
Speakers who cannot move the curve
Kashkari and Logan headline the Fed roster Wednesday and Thursday, with Cook, Jefferson, Goolsbee, Williams and Musalem filling out the rest. The market will parse every word. The market probably should not bother. Kashkari and Logan were two of the three April dissenters who pushed back against any easing bias, so any hawkish lean this week just rehydrates what is already in the futures curve. Cook tilts dovish but has been respectful of the inflation data. There is no version of this week where a Fed speaker meaningfully shifts the December dot. CME FedWatch already shows the path baked in, and the analyst consensus has stopped expecting fireworks from individual speeches.
PCE is the loud event, not the decisive one
Headline PCE consensus sits close to 3.8% YoY, core near 3.3% YoY, both lifted by the Iran-related Crude Oil shock that has been bleeding into the Consumer Price Index (CPI) for three months running. A hot print is the consensus expectation, which is precisely why a hot print is priced. An in-line read is the path of least resistance. The asymmetric move sits on Friday morning, when Governor Bailey takes the microphone. If Bailey acknowledges sticky service inflation and tacitly validates the April hike dissent, Sterling gets its first credible bid in weeks. If he pivots dovish to lean against the hawkish vote split, the 200 EMA breaks and the trend extends. That is the real fork.
Trade setup
Near 1.3400 sits the daily 200-period Exponential Moving Average (EMA), the practical floor of this drift. A clean break below 1.3350 opens 1.3300 and revives the bearish trend. Above 1.3450, momentum stalls into the 50 EMA, with 1.3500 the breakout trigger. The actionable bias into Thursday is range-trade-then-react: fade extension on an in-line PCE, keep powder dry for Bailey on Friday. The Stochastic Relative Strength Index (Stoch RSI) close to 28 on the daily argues the easy downside is behind, not ahead.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- Australian CPI undershoots, denting the RBA's hawkish hold story.
- RBNZ holds at 2.25% and gives doves nothing actionable.
- AUD/NZD prints its largest single-day decline in months from generational highs.
The Aussie Dollar finally tripped on Wednesday, dropping nearly 2% against the New Zealand Dollar. AUD/NZD had been grinding to generational highs near 1.2300, fuelled by a story of relative central bank divergence that always looked a little overcooked. It took just one softer-than-expected Australian Consumer Price Index (CPI) print, then a Reserve Bank of New Zealand (RBNZ) that refused to play ball with the doves, to crack the whole setup.
The CPI print the RBA didn't need
Australia's April CPI came in at 4.2% year-on-year (YoY), undershooting the 4.4% consensus and decelerating from 4.6% prior. The monthly read at 0.4% also missed. Trimmed mean inflation was the only line item to hold up, ticking higher to 3.4% YoY, but the headline miss was enough to undermine the case that the Reserve Bank of Australia (RBA) needs to stay restrictive for longer. Front-end Aussie rates softened on the print, and that is what the cross has been ultimately leaning on. Strip away the hawkish RBA story, even at the margin, and there isn't much left holding price above 1.2200.
RBNZ refuses to feed the doves
The other half of the trade fell apart at 02:00 GMT, when the RBNZ left the Official Cash Rate at 2.25%, exactly where it was expected to land. The hold itself was no surprise. What mattered was the accompanying Monetary Policy Statement and press conference, which gave the doves nothing actionable to chew on. Markets had been positioned for at least a cautious tilt toward easing into the back half of the year. They got something closer to patience. The Kiwi caught a rare bid across the board, and against a wounded Aussie the move was outsized.
A technical break that finally landed
The daily chart had been flashing exhaustion for weeks. Stochastic Relative Strength Index (Stoch RSI) failed to confirm the latest push above 1.2250, and price had been chopping in a tight range near 1.2200 with declining momentum. Wednesday's session sliced through the 50-period Exponential Moving Average (EMA) around 1.2100 intraday, dipping toward 1.2050 before recovering to close right back on that moving average. That close matters. A daily settlement holding above 1.2100 keeps the broader uptrend nominally intact. A sustained break below opens the door to 1.2050 and then the psychological 1.2000 handle, which lines up with consolidation from earlier in the spring.
Levels that matter from here
Bias shifts to neutral with downside risk while price holds beneath 1.2200. A reclaim of 1.2200 puts the recent highs back in play, but Stoch RSI says that is the lower-probability outcome from here. Below 1.2100, momentum sellers have a clean runway toward 1.2050, then 1.2000, where buyers should defend hard given the strength of the longer-term trend. The 200 EMA sits down near 1.1700, which gives a sense of just how stretched this pair remains on any structural timeframe.
What the calendar holds
Thursday brings Australian Private Capital Expenditure (Q1) and the New Zealand Budget Release, neither of which should derail the post-CPI repricing. The RBA Bulletin lands the same day and will be scrutinised for any softening in the inflation framing. The bigger risk into next week is the Q1 Capex print itself, which can move RBA expectations meaningfully if it misses.
AUD/NZD daily chart
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.
Reserve Bank of New Zealand (RBNZ) Governor Anna Breman's commentary was exactly what you'd expect from a central banker who just held rates while half her own committee voted to hike: a tidy list of reasons the bank is right to do nothing today, paired with a tidy list of reasons it will absolutely do something soon. She reaffirmed the inflation focus, brushed off the Budget as marginal next to supply chains and Crude Oil, and said the committee agrees the cash rate needs to be higher going forward. Just not yet, apparently.
For the Kiwi, this is the hawkish-hold flavour already in the price, and Breman's remarks reinforce direction without offering urgency. Her nod to a weak labour market suppressing wage growth is the tell, the same dovish escape hatch the RBNZ leans on whenever the cost of acting starts to look heavier than the cost of waiting. It's consistent with the new policy path, but it also explains why the bank chose to sit on its hands while three of its own members wanted to move today.
Key Breman Highlights
Fully focused on achieving inflation target.
Supply chains, oil prices to have bigger impact than what's in the government budget.
Committee sees inflationary pressures going forward, agrees cash rate needs to be higher going forward.
Hearing export-focused firms doing well but worried about the uncertain environment.
Weak labor market will suppress wage growth.
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