Forex News
- AUD/JPY edges lower to near 113.25 in Wednesday’s early European session.
- BoJ hiked interest rates by 25 bps to 1.00%, while RBA held rates steady at 4.35% at their June policy meeting.
- The cross keeps bullish vibe, but further consolidation cannot be ruled out in the near term with neutral RSI momentum.
- The first upside barrier emerges at 113.58; the initial downside target to watch is 113.23.
The AUD/JPY cross trades in negative territory around 113.25 during the early European session on Wednesday. The Japanese Yen (JPY) edges higher against the Australian Dollar (AUD) after the Bank of Japan (BoJ) raised interest rates to their highest level in more than three decades.
The BoJ decided to raise the short-term interest rate by 25 basis points (bps) to 1.0% from 0.75% after concluding the two-day monetary policy review meeting on Tuesday, as widely expected.
According to the Monetary Policy Statement, the board member will continue to increase the policy rate in response to developments in economic activity, prices and financial conditions.
On the other hand, the Reserve Bank of Australia (RBA) decided to leave the Official Cash Rate (OCR) unchanged at 4.35% after its June monetary policy meeting on Tuesday. This is a pause following three consecutive 25 basis points (bps) rate hikes earlier this year. Despite leaving the interest rate unchanged, the board members signaled that further rate hikes might be necessary to achieve its goals.
Technical Analysis:
In the daily chart, AUD/JPY holds a constructive bias as spot remains above the 100-day Simple Moving Average (SMA) while pressing into the Bollinger Bands’ upper half. The 14-period Relative Strength Index (RSI) around 48 hints at consolidative rather than overbought conditions, suggesting any pullbacks could stay contained above underlying trend support.
On the topside, a sustained break over the Bollinger SMA middle band at 113.58 would open the door toward the Bollinger upper band resistance near 114.90. On the downside, initial support aligns with the recent pivot zone around 113.23, followed by the Bollinger lower band at 112.25 and then the 100-day SMA near 112.00, where a deeper retreat would need to find buyers to maintain the prevailing upward bias.
(The technical analysis of this story was written with the help of an AI tool.)
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.
- AUD/USD remains on the back foot for the second straight day, though it lacks follow-through.
- The RBA’s hawkish tilt supports the Aussie, while the US-Iran peace deal undermines the USD.
- Traders seem hesitant ahead of the crucial FOMC rate decision amid a bearish technical setup.
The AUD/USD pair trades with a negative bias for the second straight day, though it lacks bearish conviction and holds above the 0.7050 level through the Asian session on Wednesday amid mixed cues.
The Reserve Bank of Australia (RBA) maintained a hawkish hold on Tuesday and warned that further rate increases are possible if inflation remains stubbornly elevated, which acts as a tailwind for the Australian Dollar (AUD). Furthermore, an interim US-Iran peace agreement undermines the safe-haven US Dollar (USD) and supports the AUD/USD pair. Traders, however, seem hesitant and opt to wait for the highly anticipated FOMC policy decision before placing fresh directional bets.
The AUD/USD pair keeps a bearish near-term tone 0.7085-0.7090 confluence – comprising the 100-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the May-June downfall. Adding to this, momentum oscillators hint that a short-term downward trend is still in play. The Relative Strength Index (RSI) is near 43, while the Moving Average Convergence Divergence (MACD) line remains below zero and the signal line, with the histogram remaining slightly negative.
On the topside, the immediate hurdle is clustered around the 0.7085-0.7090 confluence, with further barriers seen at the 50% level at 0.7124 and the 61.8% retracement at 0.7159. A sustained break above these would be needed to ease the current bearish pressure and expose the 78.6% retracement at 0.7209 and the swing high near 0.7272. On the downside, initial support is aligned with the 23.6% Fibo. at 0.7046, ahead of the monthly low near 0.6976, where a break would reinforce the broader decline.
(The technical analysis of this story was written with the help of an AI tool.)
AUD/USD daily chart
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.
The People’s Bank of China (PBOC) Governor Pan Gongsheng said on Wednesday that the central bank would act if the money market overnight rate persistently deviates from operation rates.
Additional quotes
To adjust the temporary overnight reverse and outright repurchase agreement time to 3-3:30 pm.
Meant to ensure flexible and efficient use of temporary overnight reverse and outright repurchase agreements in the open market.
Operating rates will be set at the 7-day reverse repurchase rate in the open market minus 25 basis points and plus 25 basis points, respectively.
Will initiate the action when the money market overnight rate remains consistently below or above the respective operation rates of the tools.
Will provide yuan liquidity to eligible overseas central bank-type institutions through the FIMA RMB repo facility
FIMA RMB repo will accept high-grade yuan bonds, including Chinese government bonds
To issue an action plan for developing offshore finance in the Shanghai International Financial Center.
Yuan to be expanded in offshore business scenarios.
Shanghai to study feasibility of setting up offshore banks.
Market reaction
The above comments had little to no impact on the Chinese proxy, the Australian Dollar (AUD), as AUD/USD trades 0.06% lower on the day at 0.7060 when writing.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- EUR/JPY cross may rise toward the all-time high of 187.95.
- The 14-day Relative Strength Index near 60 indicates solid upward momentum.
- The primary support appears at the nine-day EMA of 185.66.
EUR/JPY depreciates after three days of gains, trading around 186.20 during the Asian hours on Wednesday. The currency cross holds a constructive bullish bias as it remains above both the nine-day and 50-day Exponential Moving Averages (EMAs). This positioning suggests the recent advance is supported by underlying demand.
The 14-day Relative Strength Index (RSI) near 60 hints at firm but not yet overextended upside momentum. Additionally, the technical analysis of the daily chart suggests the EUR/JPY cross is remaining within the ascending channel pattern, suggesting an ongoing bullish bias.
The EUR/JPY cross may explore the region around the all-time high of 187.95, recorded on April 17, followed by the upper boundary of the ascending channel around 188.30.
On the downside, the primary support lies at the nine-day EMA of 185.66, followed by the 50-day EMA of 185.18. A break below these moving averages would cause a bearish shift, exposing the lower boundary of the ascending channel near 184.70. Further declines could push the EUR/JPY cross to test its nearly four-month low of 181.87, recorded on March 16, with further declines targeting the six-month low of 180.81, reached on February 12.
(The technical analysis of this story was written with the help of an AI tool.)
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | -0.01% | -0.08% | 0.02% | 0.05% | 0.01% | -0.13% | |
| EUR | 0.03% | 0.01% | -0.06% | 0.03% | 0.08% | 0.08% | -0.10% | |
| GBP | 0.01% | -0.01% | -0.06% | 0.03% | 0.11% | 0.05% | -0.08% | |
| JPY | 0.08% | 0.06% | 0.06% | 0.08% | 0.12% | 0.05% | -0.02% | |
| CAD | -0.02% | -0.03% | -0.03% | -0.08% | 0.04% | -0.00% | -0.11% | |
| AUD | -0.05% | -0.08% | -0.11% | -0.12% | -0.04% | -0.02% | -0.13% | |
| NZD | -0.01% | -0.08% | -0.05% | -0.05% | 0.00% | 0.02% | -0.11% | |
| CHF | 0.13% | 0.10% | 0.08% | 0.02% | 0.11% | 0.13% | 0.11% |
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).
- US Dollar Index softens to around 99.50 in Wednesday’s Asian session.
- A US-Iran peace deal will be signed at Switzerland’s mountainside Burgenstock resort on Friday.
- Fed is expected to leave its benchmark interest rate unchanged at a target range of 3.50% to 3.75% at the June meeting.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.50 during the Asian trading hours on Wednesday. The DXY extends the decline amid optimism surrounding a potential US-Iran peace deal. The US Federal Reserve (Fed) interest rate decision will take center stage later on Wednesday.
US Vice President JD Vance said on Tuesday that US President Donald Trump may decide to release a preliminary deal to end the war with Iran before Friday, after the US president said the agreement had already been signed. Trump stated that the Strait of Hormuz will be open by Friday and that the full text of the peace deal will be released in a “formal setting.”
The Swiss foreign ministry confirmed that a US-Iran deal aimed at ending the Middle East war will be signed at Switzerland’s mountainside Burgenstock resort on Friday. Hopes of a peace agreement between the US and Iran could undermine a safe-haven currency such as the US Dollar against its rivals.
The Fed is due to announce its next policy decision on Wednesday. Economists expect the US central bank to keep its benchmark rate in a range of 3.50% to 3.75% as it waits to see how the war’s energy-price shock ripples through the economy.
The focus will be on new Fed Chairman Kevin Warsh and the handling of the press conference that follows the interest rate decision. Any hawkish comments from Fed officials could lift the DXY in the near term.
Markets are now pricing in nearly a 64% chance of a US central bank interest rate hike in December this year after the peace deal, down from 69% last week, according to the CME FedWatch tool.
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.
- Silver advances as Friday's interim US-Iran peace agreement in Switzerland is expected to restore global oil flows.
- US Vice President JD Vance stated that President Trump may release the preliminary US-Iran peace agreement ahead of schedule.
- The Fed is widely expected to hold its benchmark interest rate unchanged at 3.50% to 3.75%.
Silver price (XAG/USD) continues its winning streak for the fifth consecutive day, trading around $70.40 per troy ounce during the Asian hours on Wednesday. The non-yielding metal gains ground as investors anticipate the signing of an interim United States (US)-Iran peace agreement this Friday in Switzerland.
The US-Iran pact is expected to immediately restore Iranian oil exports and secure safe passage for international tankers through the strategic Strait of Hormuz, helping to ease global anxieties surrounding energy-driven inflation and interest rates.
Diplomatic momentum has accelerated rapidly ahead of the signing. US Vice President JD Vance indicated on Tuesday that President Donald Trump might release a preliminary peace framework ahead of schedule, following the president's earlier comments that a framework had already been agreed upon. Simultaneously, Iranian Foreign Minister Seyed Abbas Araghchi confirmed that a new round of negotiations aimed at securing a final, comprehensive peace deal is set to begin in Switzerland.
Meanwhile, global market attention is shifting heavily toward Wednesday’s pivotal Federal Reserve (Fed) policy meeting. The US central bank is widely expected to maintain a cautious "wait-and-see" approach, keeping its benchmark interest rate unchanged within the 3.50%-3.75% range. Investors and traders will be closely monitoring the subsequent press conference, seeking crucial insights into how newly appointed Fed Chair Kevin Warsh intends to guide monetary policy into this next era.
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.
China's financial regulator on Wednesday pledged to intensify regulatory collaboration in new sectors, curb systemic risks, resolve real estate and local government debt exposures, and crack down on illegal activity and disorderly competition in the financial sector.
Key quotes
To intensify regulatory collaboration in new sectors.
Will curb systemic financial risks.
Will address risks from property and local government debt.
Will curb risks from minor financial institutions.
To address risks in small and medium-sized financial institutions effectively and orderly.
Will strictly curb unlawful financial activities.
Will gradually enhance quality of small financial institutions.
To address risks in small and medium-sized financial institutions effectively and orderly.
Will strictly curb unlawful financial activities.
Will gradually enhance quality of small financial institutions.
Will clamp down on chaotic competition.
Will steer financial resources toward emerging and future industries.
Encourage financial firms to boost capital via diverse channels to strengthen risk resilience and sustainable growth capacity.
To further advance Shanghai international financial center development.
Market reaction
At the time of writing, the AUD/USD pair is up 0.01% on the day at 0.6067.
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.
- NZD/USD attracts buyers for the second day as the US-Iran peace deal undermines the USD.
- The RBNZ’s hawkish outlook acts as a tailwind for the NZD and further supports spot prices.
- Bulls now seem hesitant and opt to wait for the FOMC rate decision before placing fresh bets.
The NZD/USD pair trades with a positive bias for the second consecutive day on Wednesday, though it lacks bullish conviction and remains below mid-0.5800s through the Asian session. Traders now seem hesitant and opt to wait for the outcome of a two-day FOMC meeting before positioning for a firm near-term direction.
The US Federal Reserve (Fed) is scheduled to announce its decision later during the US session and is widely expected to keep interest rates unchanged. The central bank is also anticipated to remove the easing bias from the accompanying statement as inflation is proving to be stickier than anticipated. Apart from this, the focus will be on updated economic projections, including the so-called dot plot, and comments from the new Fed Chair, Kevin Warsh, which will be scrutinized for further cues about the future policy path. The outlook, in turn, will play a key role in influencing demand for the US Dollar (USD) and providing some meaningful impetus to the NZD/USD pair.
Heading into the key central bank event risk, the optimism over an interim peace deal between the US and Iran keeps the safe-haven USD on the back foot. Meanwhile, Statistics New Zealand reported that the seasonally adjusted current account deficit narrowed to NZ$1.01 billion in the March quarter, down from a downwardly revised NZD 5.64 billion in the previous quarter. This, along with the Reserve Bank of New Zealand's (RBNZ) abrupt hawkish shift, might continue to support the New Zealand Dollar (NZD) and back the case for further appreciation for the NZD/USD pair.
In fact, the RBNZ's forecast strongly projects a 25 basis points (bps) rate increase at the upcoming July 8 meeting and indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. This, in turn, favors the NZD/USD bulls, suggesting that any corrective pullback might continue to attract some dip-buyers and remain limited.
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.
- USD/CAD may weaken as the US Dollar struggles amid fading risk aversion.
- US Vice President JD Vance stated that President Trump may release the preliminary US-Iran peace agreement ahead of schedule.
- The commodity-linked Canadian Dollar faces potential challenges as sliding oil prices weigh heavily on the resource-reliant currency.
USD/CAD halts its four-day winning streak, trading around 1.3990 during the Asian hours on Wednesday. The US Dollar (USD) experiences downward pressure as easing risk aversion weighs on the currency, a shift largely driven by growing expectations of a breakthrough peace deal between the United States (US) and Iran.
Momentum toward an agreement has accelerated, with US Vice President JD Vance stating on Tuesday that President Donald Trump may release a preliminary agreement to end the war ahead of schedule, following the president's earlier comments that the framework had already been signed. Simultaneously, Iranian Foreign Minister Seyed Abbas Araghchi confirmed that a new round of negotiations aimed at reaching a final, comprehensive peace deal is set to begin in Switzerland.
Meanwhile, global market attention is shifting heavily toward Wednesday's pivotal Federal Reserve (Fed) policy meeting. The US central bank is widely expected to maintain a cautious "wait-and-see" approach, keeping its benchmark interest rate unchanged within the 3.50% to 3.75% range. Investors and traders will be closely monitoring the post-meeting press conference, seeking crucial insights into how newly appointed Fed Chair Kevin Warsh intends to guide monetary policy into this next era.
However, the downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could face challenges amid lower oil prices. It is important to note that lower oil prices put downward pressure on the CAD, as Canada is the largest crude exporter.
Crude oil prices declined as anticipation grew over a looming United States (US)-Iran peace deal that could significantly boost global supply. The two nations are scheduled to sign an interim agreement in Switzerland this Friday, which would grant Tehran broad economic incentives and allow the immediate resumption of Iranian oil exports. Furthermore, international tankers are expected to resume safe transit through the strategic Strait of Hormuz once the pact officially takes effect.
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.
- GBP/USD drifts higher to near 1.3430 in Wednesday’s early Asian session.
- Optimism surrounding a potential US-Iran peace deal supports the British Pound.
- Fed will announce its rate decision on Wednesday, followed by a press conference with new Fed Chairman Kevin Warsh.
The GBP/USD pair gathers strength to around 1.3430 during the early Asian trading hours on Wednesday, bolstered by Middle East peace hopes. Markets might turn cautious later in the day ahead of the UK Consumer Price Index (CPI) inflation data and the US Federal Reserve (Fed) interest rate decision.
Two months of final negotiations will begin immediately after the initial deal between the US and Iran is signed on Friday. US President Donald Trump said the Strait of Hormuz could reopen on Friday, and Washington will allow Iran to immediately start selling oil and fuel again as part of the deal to end the war, per the Wall Street Journal. Hopes of a US-Iran peace deal could underpin the riskier assets, such as the British Pound (GBP) against the US Dollar (USD) in the near term.
The Fed is widely expected to keep its benchmark interest rate steady at its June policy meeting on Wednesday, leaving the federal funds rate in a range of 3.5% to 3.75%. The focus will be on new Fed Chairman Kevin Warsh and the handling of the press conference that follows the central bank's policy statement.
On the UK’s front, the Bank of England (BoE) is set to leave the interest rates unchanged at 3.75% on Thursday as Governor Andrew Bailey judges the UK central bank can take its time to assess if higher energy prices from the Iran war will generate lasting inflation pressure.
Futures markets have previously priced in as many as three rate hikes by the Bank of England (BoE), but now expect no changes because of falling oil prices in June and the expectation of a peace deal in the Middle East, according to Morningstar.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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