Forex News

• AUD/USD recovers on weaker US Dollar as the broader outlook for the pair remains negative.
• The US Dollar eased as investors took profits ahead of month-end and quarter-end adjustments following a two-week rally.
• China remains a key driver for the Aussie as stronger Chinese activity or stimulus could support AUD demand.

AUD/USD is recovering near 0.6900 on Friday as the US Dollar (USD) weakens with investors taking profits ahead of the end of the semester after a two-week rally in the Greenback. The move helped the Australian Dollar (AUD) recover some intraday ground, although the full picture remains negative.

The Greenback came under pressure as traders locked in gains following its recent advance, reducing demand for the currency ahead of month-end and quarter-end portfolio adjustments.

China’s economic momentum is closely linked to demand for Australian exports, especially commodities such as iron ore and coal. Any signs of stronger Chinese activity or additional stimulus tend to support the Aussie, while weaker Chinese data can quickly weigh on AUD sentiment.

Lately, Chinese macro figures have painted a mixed picture: tepid consumption, as reflected in a sharp decline in May Retail Sales, a consumption indicator, alongside steady growth in Industrial Production.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6904, holding a capped bias as it oscillates around the 20-period Simple Moving Average (SMA) at 0.6904 while remaining well beneath the 100-period SMA at 0.7016. The cluster of overhead horizontal levels at 0.6906 and 0.6917 reinforces the notion of near-term supply, while the Relative Strength Index (RSI) at 39 stays below the neutral 50 line, hinting that recovery attempts could struggle unless buyers reclaim these nearby resistances.

On the downside, immediate support is seen at 0.6887, followed by a lower horizontal floor at 0.6876, where a deeper pullback could attempt to stabilize. On the topside, initial resistance aligns at 0.6906, ahead of 0.6917, with the 100-period SMA at 0.7016 marking a more significant barrier that would need to be overcome to challenge the prevailing bearish tone.

(The technical analysis of this story was written with the help of an AI tool.)

Standard Chartered economists Hunter Chan and Shuang Ding note that China’s fiscal spending has underperformed so far in 2026, weighing on growth despite stronger-than-expected Q1 data. General public budget spending and government funds spending have both lagged plans, but the approved budget leaves room for a sizeable deficit expansion, which they expect to be used to support domestic demand and GDP growth.

Fiscal deficit room points to support

"Growth momentum weakened in April-May after a stronger-than-expected Q1. The decline in fiscal spending in April-May contributed to the downturn, in our view. The broad deficit, combining the general public budget and government funds budget, was CNY 393bn smaller y/y in these two months, versus CNY 258bn larger in Q1."

"General public budget spending grew only 0.8% y/y in 5M-2026, versus budgeted annual growth of 4.4%. Revenues grew 4% y/y in 5M-2026, faster than the planned annual pace of 2.2%. Government funds spending dropped 4.3% y/y in 5M-2026, weighed down by a nearly 20% y/y decline in revenue as land sales contracted further."

"We expect the government to accelerate budget implementation to boost domestic demand, as Q2 GDP growth will likely fall below 4.5% y/y. The budget approved in March implies a positive fiscal impulse if fully implemented. Assuming YTD revenue trends under the two budgets continue for the rest of the year, we estimate that broad spending growth could rebound if the deficit room is fully utilised."

"The broad deficit in June-December could exceed the comparable 2025 outcome by CNY 1.7tn, on our estimate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

UOB’s Lee Sue Ann highlights that Australia’s unemployment rate dipped to 4.4% in May with a 40.3k employment gain, mainly in part-time jobs, and participation rising to 66.7%. However, she stresses that falling hours worked and higher underemployment signal weakening labour utilisation and a gradual loosening in labour market conditions beneath the resilient headline figures.

Headline resilience versus softer utilisation

"That said, the underlying details were less encouraging. Total hours worked declined by 1.1% over the month, while the underemployment rate ticked higher to 5.9%, indicating a deterioration in labour utilisation despite the rebound in headcount."

"The composition of job gains, skewed toward part-time roles, alongside softer hours worked suggests that firms remain cautious in expanding labour demand. In trend terms, the unemployment rate edged up to 4.4% (from 4.3% previously), reinforcing the view that labour market conditions are gradually loosening beneath the surface."

"Taken together, the latest labour market data reinforces the narrative of a gradual and uneven cooling in the economy. The resilience in headline employment reduces near-term downside risks, but the softer underlying indicators point to continued moderation in labour market momentum."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Societe Generale economists Reo Sakida and Jin Kenzaki analyze June Tokyo Consumer Price Index (CPI), noting that overall inflation dynamics in Japan changed little from May despite a modest upside surprise in headline and core readings. They highlight that non-fresh food is on a disinflationary path but likely near a bottom, while service inflation remains firm and Tankan survey expectations will be crucial into 2H.

Tokyo CPI shows steady inflation signals

"Overall: Inflation dynamics changed little from the previous month. The increase from previous month largely reflects the fading impact of Tokyo’s water fee waiver program and therefore does not signal broader nationwide inflation pressure. Non-fresh food remains on a disinflationary path, although the trough appears close."

"Into 2H, negative base effects begin to fade, adding some upward pressure."

"Food: Food prices continue to decline, but survey data suggest inflationary pressures are building for the late summer months. As negative base effects gradually fade into 2H, food inflation appears close to bottoming."

"In addition, the latest June survey from Teikoku Databank shows an upward shift in planned food price revisions. Higher energy costs have yet to fully feed through to consumer prices, but that is likely to change in late summer as producers begin passing those costs on."

"Nevertheless, service inflation should remain firm, supported by solid fundamentals. Strong wage negotiation results continue to support wage growth, while service consumption has remained resilient."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• GBP/JPY remains range-bound amid UK political developments and Japan intervention risks.
• Tokyo inflation accelerates, supporting expectations of further Bank of Japan rate hikes.
• Attention turns to next week's revised UK GDP and Japan labor market figures.

GBP/JPY trades in a narrow range on Friday as traders weigh the latest UK political developments against lingering intervention risks from Japanese authorities, with USD/JPY holding above the 161.00 level.

At the time of writing, the cross trades around 213.70 after hitting an intraday low of 213.21.

The British Pound (GBP) has remained resilient despite Prime Minister Keir Starmer's resignation, as investors expect a smooth transition to frontrunner Andy Burnham, who has pledged to maintain the UK's fiscal rules.

Earlier on Friday, the Financial Times reported that outgoing PM Starmer is set to increase military spending by at least £1 billion more than previously planned, one of the most significant efforts to strengthen his legacy before leaving office.

Meanwhile, on the Japanese side, the Yen (JPY) remains under pressure despite stronger Tokyo inflation data, which reinforced expectations that the Bank of Japan (BoJ) will continue raising interest rates.

Headline Tokyo Consumer Price Index (CPI) rose to 1.7% YoY from 1.4%, while the CPI excluding fresh food and energy increased to 1.9% from 1.6%.

Attention now turns to next week's economic releases, including the UK's revised first-quarter Gross Domestic Product (GDP) data and Japan's labor market figures.

BNY’s Geoff Yu highlights that South Korean equities have delivered exceptional returns in 2026 while institutional investors remain net sellers, particularly from the Americas. KRW FX volumes are elevated, but the won has weakened against the Dollar, pointing to hedging and profit-taking rather than fresh inflows. Retail investors are the key marginal buyers, raising concentration and regulatory risk.

Equity gains versus weak KRW

"Cross-asset volumes back that up. In South Korea, KRW activity picked up sharply as the rally extended, but FX never confirmed the equity move. Despite the KOSPI rising more than 110% year to date, the won weakened by about 6% against the U.S. dollar."

"South Korean equities saw $17.25bn of net institutional outflows year to date through June 2026. The Americas drove the move, accounting for $15.65bn of net selling, or nearly all of the global total. U.S. institutions were the biggest sellers by far, responsible for 72% of all South Korean equity sales globally year to date."

"Retail is the marginal buyer. Retail investors have become the key marginal buyers in South Korea. Free from ownership caps and benchmark constraints, they kept adding to AI and semiconductor names even as institutions sold."

"Cross-asset activity makes the South Korea story clear. In forwards and swaps, cross-border KRW FX volumes averaged 1.23x normal year to date, with nine surge days above the 2.05x threshold – almost 8% of all trading sessions. June posted the highest KRW activity of the year at 1.90x normal volume, even though the KOSPI returned just 3.6% for the month."

"Watch the marginal buyer. There are signs South Korea’s retail flow impulse may be fading. The June 23 correction, with the KOSPI down 10% on the day, along with wider weakness in global tech, is likely to increase scrutiny of leveraged retail participation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• The Japanese Yen strengthens as USD/JPY retreats toward 161.60 after another failed attempt to break above 162.00.
• Expectations for further Bank of Japan rate hikes and intervention risks support the Japanese currency.
• A softer US Dollar, driven by easing expectations for additional Federal Reserve tightening, caps the pair's upside.

USD/JPY edges lower on Friday and trades around 161.60 at the time of writing after once again failing to sustain a move above the 162.00 mark. The pair is facing profit-taking as investors remain cautious over the risk of intervention by Japanese authorities to support the domestic currency.

The US Dollar (USD) is also losing some ground after markets slightly scaled back expectations that the Federal Reserve (Fed) will deliver at least two additional interest rate hikes this year. According to the CME FedWatch tool, those odds have declined from last week as easing energy prices have reduced inflation concerns.

At the same time, the Japanese Yen (JPY) continues to receive solid fundamental support. The Summary of Opinions from the Bank of Japan (BoJ) June meeting showed that several policymakers are increasingly concerned about inflation risks, with one board member arguing that the policy rate should be moved closer to the estimated neutral level of around 2% as soon as possible. Tokyo inflation data released this week also reinforced expectations for additional BoJ rate hikes later this year.

Market participants also remain alert to comments from Japanese officials. Chief Cabinet Secretary Minoru Kihara reiterated that authorities stand ready to respond if foreign exchange moves become excessive, while Finance Minister Satsuki Katayama discussed currency developments with US Treasury Secretary Scott Bessent.

Several banks believe the 162.00-163.00 area could now represent a new intervention zone. ING argues that markets increasingly view 162.00 as the new "line in the sand" for intervention, while MUFG believes intervention risks are already helping to limit further JPY weakness. Meanwhile, Commerzbank notes that Japan's inflation moving closer to the Bank of Japan's 2% target gives policymakers greater scope to continue normalizing monetary policy.

Commerzbank strategists note that despite lower Oil and gas prices, European Central Bank (ECB) officials still signal at least one more rate increase, which the bank forecasts for September. Its quantitative model sees Euro area inflation around 3% through year-end, with 10-year Bund yields expected to fall once Persian Gulf tensions ease and ECB and Federal Reserve (Fed) rate cuts become more likely from mid-2027.

September hike then gradual easing path

"Nevertheless, recent statements by ECB officials point to another interest rate hike—which we forecast for September."

"In any case, our quantitative model forecasts that, despite lower oil and gas prices, the inflation rate is likely to remain around 3% through the end of the year. This is largely because companies will gradually pass on the higher costs they have incurred so far."

"The ECB is likely to hike rates a second time due to inflation risks. When inflation falls again, it is likely to cut the depo rate again to 2.0%, the level prevailing before the Iran war."

"10-year Bund yields are likely to fall again once the conflict in the Persian Gulf comes to an end. After all, interest rate cuts by the ECB and the Fed should then become increasingly likely and should indeed start in mid-2027."

"However, the continued high funding needs in many countries due to large budget deficits should limit the decline in yields."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Bart Melek at TD Securities argues that Strait of Hormuz disruptions have driven Oil inventories to historically low levels, leaving Brent oversold and vulnerable to a sharp short-covering rebound. The bank sees Brent potentially moving into a $90–110/bbl range or toward $100/bbl for a period, which would lift inflation expectations and reinforce restrictive Federal Reserve policy, pressuring Gold further.

Inventory erosion and shorts support upside

"With the Strait of Hormuz disruption eroding inventories to historically low levels, the key risk is that the oversold crude market could stage a sharp rebound as specs cover in response to tightening supply conditions. We believe Brent could still move into the $90–110/bbl range, lifting inflation expectations and reinforcing a restrictive policy bias, thereby increasing carry and opportunity costs for gold holders."

"Despite the likelihood that tankers will be able to pass freely through the Strait of Hormuz, the continued erosion of inventories to unsustainably low levels well into October suggests that crude could still move toward $100/bbl territory for a period, up from the current $74/bbl."

"It is also important to note that oil is oversold, with investors holding outsized short positions. With Cushing inventories slightly below 19 million barrels and global inventories also reaching low levels there is a strong possibility of a short-covering rally. Such an upside move would likely push market participants to price in a more restrictive Federal Reserve policy stance."

"There also remains the possibility that China, which in our view has played a key role in preventing a sharper oil price surge at the onset of the crisis and in driving prices lower more recently by reducing imports by 40%, may not be able to continue doing so through October. China is unlikely to draw down its strategic reserves for an extended period, as doing so could leave it vulnerable should new hostilities emerge."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Lee Hardman at MUFG highlights that the Japanese Yen remains near year-to-date lows versus the US Dollar, with intervention risks limiting further weakness. Stronger Tokyo CPI supports expectations for additional Bank of Japan rate hikes, with markets pricing around 14bps by October and potential downside in USD/JPY if the Fed disappoints on rate hikes.

Stronger prices keep BoJ under pressure

"The JPY is continuing to trade close to year-to-date lows against the US dollar after it briefly touched the high from July 2024 yesterday at 161.95. The risk of intervention is helping to dampen yen weakness in the near-term and contributing to the yen outperforming other G10 currencies alongside the strengthening US dollar in recent weeks."

"After hitting a high of 186.32 on 17th June, EUR/JPY has dropped back below the 184.00-level moving back closer to support from the 200-day moving average at around182.50."

"The case for further BoJ rate hikes was supported by the release of the latest Tokyo CPI report for June. The report revealed that headline and core inflation measures were stronger than expected rising to 1.7% and 1.9% respectively."

"The BoJ has recently indicated that there is higher risk that inflation could overshoot their target. It has encouraged expectations that they could speed up the pace of hikes by delivering the next hike as soon as the October policy meeting rather than waiting until December."

"A BoJ rate hike could push down USD/JPY more if the Fed also disappoints market expectations for rate hikes starting in the autumn."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)