Forex News

BNY’s Bob Savage highlights that the Reserve Bank of Australia kept its cash rate unchanged at 4.35% but maintained a clear tightening bias. The Australian central bank emphasized that further rate hikes remain possible if inflation pressures persist. This stance keeps policy expectations skewed toward additional tightening rather than cuts in the near term.

Australian policy steady with hawkish tilt

"The BoJ delivered a hawkish 25bp hike to 1.0% and will continue to scale back its JGB purchase program, while the RBA kept rates unchanged at 4.35% but maintained a tightening bias."

"RBA holds but remains vigilant: The Australian central bank has kept its cash rate at 4.35% while emphasizing that further tightening remains possible if inflation pressures persist."

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

Rabobank’s FX Strategy team notes that USD/JPY is little changed after the latest BoJ meeting, with markets more focused on the upcoming Fed decision and new Fed President Warsh. The BoJ raised its policy rate to 1% and adjusted its JGB purchase plans, but implied rates still price limited tightening. Rabobank expects further BoJ policy signals to support the Japanese Yen and a lower USD/JPY over a three‑month horizon.

BoJ tightening, Fed focus and Yen outlook

"While no policy change is expected from the Fed for a while, any hints from Warsh tomorrow regarding his favoured communication methods and policy frameworks may provide fresh direction for USD/JPY."

"This means that if there were a rapid rise in long term interest rates, the BoJ could increase the amount of JGBs it purchases."

"Implied market rates indicate only another 15 bp of tightening is priced in on a 6-month view."

"This suggests that there is scope for the BoJ to signal support for the JPY if it can accelerate the pace of policy tightening."

"Our forecast of a move back to USD/JPY on a 3-month view assumes the BoJ signals further policy tightening is likely to be forthcoming before the end of the year."

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

National Bank of Canada (NBC) expects USD/CAD to remain broadly range-bound, with recent moves reflecting shifting expectations for Federal Reserve and Bank of Canada policy. The bank notes that softer US data and a more cautious Fed could cap Dollar strength, while Canadian fundamentals and oil prices may limit sustained CAD weakness over the coming months.

USD/CAD seen broadly range-bound

"We continue to see USD/CAD trading in a broad range over the coming months, with neither the US Dollar nor the Canadian Dollar showing a clear catalyst for a sustained trend at this stage."

"While softer US data and a more cautious Fed stance could prevent a significant appreciation of the greenback, we also believe that lingering concerns about global growth and commodity demand will limit the extent of any Canadian Dollar outperformance."

"Our baseline scenario assumes that USD/CAD will oscillate within its recent trading band, with upside risks emerging if US economic resilience forces markets to further scale back Fed easing expectations, and downside risks materializing if global risk sentiment improves and oil prices remain supported."

"As long as USD/CAD holds below the upper end of its recent range, we would be reluctant to chase the pair higher, preferring instead to look for opportunities to fade rallies toward resistance levels identified by our technical analysis team."

"Conversely, a sustained break below the lower bound of the range would be needed to signal that a more durable Canadian Dollar appreciation cycle is underway, something that would likely require a combination of stronger domestic data and a more pronounced shift in global risk appetite."

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

US President Donald Trump on Tuesday outlined the next steps in the Iran agreement, saying the deal's text will be released in the coming days and that the Strait of Hormuz should be fully reopened by Friday.

Key Quotes

We will have the Strait of Hormuz fully open by Friday.

We will release the text of the Iran agreement in a formal setting.

We expect the second stage of the Iran deal to move quickly.

The memorandum of understanding clearly states that Iran will not have a nuclear weapon.

We will hold a news conference on the Iran agreement in the coming days.

We will review the memorandum of understanding with the media shortly.

This agreement is about one thing: ensuring that Iran never acquires a nuclear weapon.

We will send the Iran agreement to Congress for review

We are in a position to let Russia's oil waivers lapse.

The Japanese Yen (JPY) remains anchored around the critical 160.00 threshold against the US Dollar despite the Bank of Japan's (BoJ) historic decision to raise its benchmark interest rate to 1.00%. 

While the 25-basis-point increase lifts borrowing costs to their highest level in over three decades, its immediate market impact has been highly muted because the adjustment was already fully priced in by market participants. 

However, with the central bank highlighting growing concerns over upside inflation risks and mapping out a revised path for its long-term bond-purchasing program, prominent financial institutions indicate that a structural cycle of monetary normalization will ultimately reshape the currency's trajectory.

Telegraphed tightening leaves the Yen range-bound

Macro strategy experts at MUFG observe that the Yen failed to spark a meaningful recovery immediately following the policy announcement due to the central bank's heavy pre-meeting signaling. They point out that while rapid price pass-through from global energy costs is fueling domestic inflation pressures, the BoJ's decision to pause its quantitative easing taper starting in FY2027 shows a measured approach that could leave the currency exposed to speculative selling before additional rate hikes materialize.

The weak yen is one factor which could encourage the BoJ to speed up the pace of rate hikes but there was no strong indication over the timing of the next hike at today’s policy meeting. The yen’s failure to strengthen on the back of today’s BoJ rate hike will keep pressure on Japan to intervene again to provide support.

Successive hikes lay groundwork for medium-term recovery

The research team at Societe Generale argues that a policy rate of 1.00% represents merely the bottom of Japan's neutral interest rate range. They project that persistent upward deviations in inflation will validate a steady, predictable tightening cycle over the next several quarters, which will steadily chip away at the wide yield gaps currently penalizing the Yen.

Our house view is for the policy rate to increase at a cadence of 25bp every quarter to reach the terminal policy point of 2% by the end of next year.

Banks point toward near-term vulnerability ahead of turnaround

Both institutions anticipate a soft near-term trend for the Japanese Yen, while remaining constructive on its structural path over the medium term. MUFG flags immediate downside risks, noting that a lack of aggressive dollar selling will likely keep the USD/JPY pair hovering precariously above 160.00 and necessitate fresh government market interventions.

In contrast, Societe Generale maintains that the currency is poised for an eventual turnaround, concluding that as successive quarterly hikes push the terminal policy rate toward 2.00% by the end of 2027, the changing macro environment will inevitably dictate a steady Yen appreciation from its current discounted levels.

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