Forex News

• Core US inflation ran hotter than forecast in August, lifting the odds of a Fed rate hike next week.
• Treasury yields are higher for short tenures, yet the Dollar's post-CPI bounce has already faded.
• The Aussie is holding near recent highs, supported by the Dollar's failure to turn its policy story into strength.

AUD/USD is edging higher today but is yet to retake the 0.7200 mark on Friday. The pair is clawing back part of the previous session's sharp sell-off after hitting multi-month highs in the high 0.7200s. The recovery holds even after a firmer-than-expected United States (US) inflation print that would normally weigh on the Aussie.

US core Consumer Price Index (CPI) data ran hotter than forecast in August, strengthening the case for a Federal Reserve (Fed) rate hike at next week's meeting. Though headline CPI rose 0.4% MoM, in line with expectations, core inflation increased 0.3%, its fastest pace since April and above the 0.2% consensus.

Higher Crude and rising front-end yields would normally support the US Dollar, but it has struggled to follow either signal. A growing US policy premium has taken hold of FX pricing and weakened those traditional links. Investors remain wary of the policy mix, the fiscal outlook, and efforts to hold down long-term borrowing costs. That hesitation is helping the Aussie keep its ground.

The 2-year US Treasury yield, the one most sensitive to Fed policy, pushed up to around 4.62% and rose roughly 3 basis points on the day as it leaned into a near-term interest rate hike. The 10-year offered some relief at the long end, but remains sitting near its highest level since 2023 and holding above the 4.90% level.

Energy remains an inflation risk. Brent Crude is reported above $107 a barrel amid continued disruption around the Strait of Hormuz, although West Texas Intermediate (WTI) Oil fell about 3%. The International Energy Agency (IEA) says the global Oil supply deficit is set to worsen this year, with inventories down a further 95 million barrels last month. The institution does not expect Gulf output to fully recover until next year.

The clearest near-term catalyst is next week's Fed decision. A decisive hike backed by firm guidance would give the US Dollar its strongest support in weeks; anything softer could reinforce the view that policymakers are reluctant to confront persistent inflation.

Technical analysis:

In the 4-hour chart, AUD/USD trades at 0.7176, maintaining a capped near-term tone as it holds beneath both the 20-period Simple Moving Average (SMA) at 0.7199 and the 100-period SMA at 0.7178. The pair is testing a nearby horizontal pivot at 0.7176 after failing to sustain recent gains, while the Relative Strength Index (RSI) around 40 hints at fading bullish momentum and keeps the risk tilted modestly to the downside while below these moving averages.

On the topside, initial resistance is seen at the 100-period SMA near 0.7178, followed by the horizontal barrier at 0.7188, with the 20-period SMA at 0.7199 reinforcing a broader supply zone overhead. On the downside, immediate interest sits at the 0.7176 pivot, ahead of further support at 0.7165 and then 0.7154, where a deeper slide would expose a more meaningful deterioration in the short-term structure.

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

DBS Group Research forecasts an improvement in China’s industrial production to 5.0% year-on-year in August, helped by strong export growth driven by AI-related electronics. However, Taimur Baig and Chang Wei Liang expect retail sales to stay subdued, and see further weakness in fixed asset investment as the property downturn and shift to completed-home sales weigh on activity.

External demand offsets weak property sector

"Industrial production is expected to improve from 4.5% yoy in July to 5.0% in August, supported by strong exports."

"Export growth edged up from 23.9% yoy in July to 25.0% in August, amid robust demand for AI-related electronics."

"However, on domestic front, retail sales growth is expected to remain subdued at 0.4% in August, partly due to a high base from last year’s trade-in subsidy programmes."

"On the investment side, the decline in fixed asset investment is expected to expand further from -6.7% yoy ytd in July to -7.0% yoy ytd in August."

"China’s shift from presales towards completed-home sales is likely to weigh on near-term investment, land acquisitions and project starts, particularly among highly leveraged private developers."

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

Commerzbank economists, led by Dr. Henry Hao and colleagues, note Taiwan’s August trade surplus hit a record USD22.3bn, driven by strong AI-related exports. Electronics and semiconductor shipments surged, lifting overall exports and imports. Authorities expect export momentum to stay strong in H2, though the economy remains heavily reliant on AI-driven electronics, leaving growth exposed to any slowdown in global AI investment.

Record surplus driven by AI electronics

"August trade surplus surprised on the upside, widening to a record USD22.3bn (Bloomberg consensus: USD19.9bn) vs USD17.2bn in July. Year-to-date, the surplus has risen 57.6% to USD136.9bn, supported by robust AI-related export growth."

"Exports jumped 41.0% yoy (Bloomberg consensus: 34.7%) vs 32.9% in July, driven by strong demand for advanced semiconductors and other AI-related products, alongside higher memory-chip prices. It hit a record monthly high of USD82.4bn."

"Growth was more subdued outside the electronics sector. Plastic exports fell 1.1% yoy vs +3.8% in July, while transport equipment exports rose 2.3% vs -0.7% previously. By contrast, electronic-component exports surged 58.0%, while information, communication and audiovisual products rose 41.8%. Together, these two categories accounted for 78.7% of total exports in the first eight months."

"Imports also rose more than expected by 44.3% yoy (Bloomberg consensus: 40.1%) vs 37.4% in July. Technology-related imports remained particularly strong, reflecting robust demand for intermediate inputs and equipment associated with the AI supply chain and export production. Machinery and electrical equipment imports surged 60.1% vs 55.8% previously. Additionally, imports also gained on higher global commodity prices with crude oil imports jumping 55.8% vs 15.5% in July on renewed tensions in the Middle East."

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

ING economists Deepali Bhargava and Lynn Song expect the Bank of Japan to raise its policy rate by 25bp to 1.25%, citing persistent price pressures. They project two further 25bp hikes in January and April 2027, taking the rate to 1.75%. Markets will also watch upcoming Japanese inflation, trade and core machine orders data for confirmation.

BoJ seen front loading rate hikes

"We expect the Bank of Japan to raise its policy rate by 25bp to 1.25% on Friday amid persistent price pressures."

"Our base case assumes two additional 25bp hikes in January and April 2027, taking the policy rate to 1.75%."

"The logic is straightforward: policymakers may prefer to front‑load tightening while inflation remains elevated, and before the policy backdrop becomes more complicated after April."

"Japan will release its August inflation data earlier that day."

"Market consensus expects headline inflation to edge up to 2.0% year-on-year, while core inflation remains unchanged at 1.8%."

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

• USD/CHF holds firm as the Swiss Franc underperforms its major peers.
• US CPI strengthens Fed rate-hike expectations, although the US Dollar struggles to capitalize on the data.
• SNB intervention risks and Switzerland’s low interest rates keep the Swiss Franc under pressure.

USD/CHF holds onto gains on Friday even as the US Dollar (USD) turns lower following the release of the latest United States (US) Consumer Price Index (CPI) report, which strengthened expectations that the Federal Reserve (Fed) could raise interest rates next week.

At the time of writing, the pair trades around 0.8150 after touching an intraday high of 0.8170, its highest level since July 30. The pair is also on track for a third consecutive weekly gain.

The headline CPI rose 0.4% MoM in August, matching market expectations but accelerating from the 0.1% increase recorded in July. Annual inflation held steady at 3.4%, also in line with forecasts. Core CPI, which excludes volatile food and energy prices, increased 0.3% MoM, above the 0.2% forecast, while the annual rate eased to 2.4% from 2.5%.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99 after briefly climbing to 99.36 in the immediate reaction to the data. However, a pullback in US Treasury yields and Oil prices tempers demand for the Greenback despite the increased rate-hike expectations.

According to the CME FedWatch Tool, markets now price in an 85% chance of the US central bank raising borrowing costs at the September 15-16 meeting, up from 67% earlier in the day.

Meanwhile, preliminary data from the University of Michigan showed that the Consumer Sentiment Index fell to 47.8 in September from 51.7. The Consumer Expectations Index dropped to 45.8 from 51.5. At the same time, 1-year inflation expectations rose to 4.6% from 4.0%, while the 5-year measure increased to 3.4% from 3.3%.

USD/CHF faces limited selling pressure as the Swiss Franc (CHF) underperforms its major peers. SNB Chairman Martin Schlegel said on Friday that “the Swiss Franc exchange rate is a challenge for the Swiss economy,” reinforcing expectations that the central bank is prepared to intervene if the currency appreciates sharply.

Switzerland’s subdued inflation backdrop supports the Swiss National Bank’s (SNB) zero-interest-rate policy, while other major central banks are expected to tighten monetary policy as elevated Oil prices increase global inflation risks.

This would leave Swiss interest rates even further behind those in other major economies, encouraging investors to favour higher-yielding currencies and use the low-yielding Swiss Franc to fund carry trades. The shift is already visible as expectations of faster Bank of Japan (BoJ) tightening strengthen the Japanese Yen (JPY) and trigger the unwinding of Yen-funded positions.

DBS Group Research expects India’s inflation to accelerate to 4.9% year-on-year, with food and energy costs driving a gradual broadening of price pressures. Chief Economist Taimur Baig and strategist Chang Wei Liang see inflation staying above 5% in the second half of the fiscal year, underscoring a tighter policy bias, while the goods trade deficit likely remains wide at around $30 billion.

Rising food and energy costs lift CPI outlook

"India’s inflation is expected to quicken to 4.9% yoy from 4.4% month before."

"A gradual broadening of price pressures is likely to keep inflation readings above 5% in second half of the fiscal year, underscoring the need for a tighter policy bias."

"Energy prices have remained volatile, raising input cost pressures that could gradually filter through to consumers, even as retail fuel prices have been kept unchanged since May."

"After two years of normal monsoon, cumulative southwest rainfall this year is currently 15% below the long-term average (as of early-September), alongside slower build-up in reservoir levels, which could impact upcoming rabi crops as well."

"The goods trade deficit is, meanwhile, likely to stay wide at $30bn as an improvement in exports is accompanied by a further widening in the energy import bill."

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

• USD/CAD rises toward 1.3870 after reaching 1.3882 in the immediate reaction to the US inflation report.
• US annual inflation remains unchanged at 3.4% in August, while monthly core inflation comes in above expectations.
• The Canadian Dollar underperforms as US Oil plunges more than 4% and falls back below $100.

USD/CAD rises 0.27% on Friday and trades around 1.3870 at the time of writing, after reaching a daily high of 1.3882 in the immediate reaction to the release of United States (US) inflation data. The pair is on track for a third consecutive day of gains, supported by the US Dollar's (USD) initial reaction to the data and a sharp decline in Oil prices that weighs on the Canadian Dollar (CAD).

The US Consumer Price Index (CPI) rises 3.4% YoY in August, unchanged from the previous month and in line with market expectations, according to data released by the Bureau of Labor Statistics (BLS) on Friday. On a monthly basis, prices increase 0.4%, following a rise of just 0.1% previously.

The underlying figures provide a slightly firmer signal. The Core CPI, which excludes volatile food and energy components, rises 0.3% MoM, exceeding the 0.2% forecast. On an annual basis, however, core inflation eases to 2.4% from 2.5% in July.

The US Dollar briefly strengthened following the release as investors reacted to the stronger-than-expected monthly increase in core inflation. However, the Greenback struggles to retain its gains as the annual figures show no renewed acceleration in inflationary pressures.

On the Canadian side, selling pressure is more pronounced. The Canadian Dollar underperforms its major currency peers on Friday as Oil prices retreat sharply after recently reaching a fresh four-month high. West Texas Intermediate (WTI) US Oil falls 4.62% and trades around $95.90 at the time of press, after facing strong selling pressure above the $100 level.

Lower Oil prices represent a headwind for the Canadian currency due to the significant role of energy in Canada's exports. The Loonie's weakness, combined with the US Dollar's initially positive reaction to the inflation data, allows USD/CAD to extend its advance on Friday.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3864, retaining a bullish near-term bias as it holds above the 100-period and 200-period simple moving averages (SMAs) at 1.3808 and 1.3827, as well as the rising trend-line support region around 1.3835. The Relative Strength Index (14) at 76.9 sits in overbought territory, suggesting strong upside momentum but also warning that the latest advance could be prone to a corrective pause if buyers fail to clear nearby resistance.

On the topside, initial resistance is aligned at 1.3872, with a subsequent hurdle at 1.3890, where a break would reinforce the bullish structure and open further gains. On the downside, immediate support is seen at the trend-line area near 1.3835, followed by the 200-period SMA at 1.3827 and the 100-period SMA at 1.3808; a deeper pullback toward the horizontal floor at 1.3760 would likely signal that bulls are losing short-term control.

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

Deutsche Bank’s Chief UK Economist Sanjay Raja highlights stronger-than-expected UK GDP data, with July output rising 0.4% month-on-month and broad-based gains across services, production and construction. He notes particularly strong momentum in information and services linked to AI capex, and argues that UK growth and productivity trends are improving, prompting Deutsche Bank to upgrade its near-term GDP projections for Q3 and annual growth.

AI-linked services power UK expansion

"Yet again, the UK economy surprised – and surprised in a good way. July GDP bucked all expectations, expanding by 0.4% m/m. This was a broad-based rise, with the services sector up 0.4% m/m, production sector up 0.2% m/m (with manufacturing rising by 0.9% m/m) and construction output up 0.1% m/m."

"What’s going on? If we look at the services sector in the UK – the engine of growth in the country – signs of AI capex are coming through even more. It was the information and services sector that saw significant growth, with telecoms up 1.1% m/m, computer programming/consultancy services up 3.5% m/m and information services activities up 1.1% m/m."

"What does this all mean for the UK economy? We came into this year more optimistic than our peers. But the UK growth story is becoming harder to ignore."

"Annualised growth is now tracking at 2.4%. Households and businesses are still spending – despite the unfolding energy shock impacting disposable incomes. There’s clearly something happening here."

"We expect forecasters to ratchet up their projections yet again after today. Indeed, summer GDP growth now looks poised to be four times larger than we thought (our official expectation was for Q3-26 GDP to expand by 0.1% q/q – we now look on track to expand by 0.4% q/q)."

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

• Consumer confidence is expected to cool further in September
• One-year inflation expectation picked up pace to 4.6%

American consumer confidence is expected to lose some traction in September, as households have been growing more pessimistic about current conditions and the broader economic outlook, according to preliminary data from the University of Michigan.

The closely watched Consumer Sentiment Index is predicted to have weakened to 47.8 from 51.7 in the previous month, missing economists’ expectations (51) and signalling extra weakening in public confidence.

Furthermore, the Current Conditions index edged lower to 50.9 from 51.9, while the Expectations gauge followed suit, down to 45.8 from 51.5, highlighting a downbeat scenario for the months ahead.

Inflation expectations, meanwhile, appear to have reignited somewhat: the one-year outlook rose to 4.6% (from 4%), and the five-year forecast went up to 3.4% from 3.3%.

Market reaction

The US Dollar remains slightly offered, flirting with the 99.00 region and fully fading the post-CPI bull run when gauged by the US Dollar Index (DXY).