Forex News

Commerzbank’s Volkmar Baur notes South African inflation surprised on the downside in August, with headline Consumer Price Index (CPI) at 4.3% and core at 4.2%. He attributes the easing mainly to lower gasoline and food prices but warns that high Oil prices and a likely strong El Niño threaten future food costs, raising risks of prolonged breaches of the inflation target.

Lower CPI now, rising risks ahead

"A look at the core rate shows that the easing in the overall rate was mainly due to falling gasoline and food prices. As for gasoline prices, it is already clear that they will not provide any relief in August. On the contrary, if global prices for crude oil and petroleum products remain high, the monthly gasoline prices in South Africa are likely to rise again in September."

"More serious, however, is the outlook for food prices. Meteorologists increasingly agree that an El Niño will occur again this year, which typically brings warm and drier weather to South Africa between November and March."

"Meteorologists also estimate that the probability of a very strong El Niño this year is around 90%. The probability that it will be the strongest El Niño since records began in 1950 is currently estimated at 69%."

"The last two strong El Niño episodes in 2015/16 and 2023/24 led to a decline in the maize harvest - South Africa’s most important staple food - of between 20% and 50%. In 2016, this resulted in an annual price increase of about 15% for grains."

"As the year progresses, the risks of missing the inflation target over a prolonged period are thus increasing once again."

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

OCBC strategists Sim Moh Siong and Christopher Wong say the Dollar has weakened to its lowest level since May as expanded Treasury buybacks pushed long-end US yields lower. They expect restrained yields and a Fed that remains on hold to keep the USD under pressure in the near term, with attention turning to Fed Chair Warsh’s Jackson Hole speech next week.

Dollar soft with yields constrained

"The USD (i.e. DXY) fell to its weakest level since May, while long-end US Treasury yields declined after the US Treasury announced larger long-end bond buybacks. The Treasury will increase the size of its longer-dated buyback operations from USD2bn to at least USD4bn during the next refunding quarter, from 9 September to 4 November."

"Even so, the move signals Treasury's discomfort with the rise in long-term yields and should help restrain further increases in long-end yields in the near term. That said, the structural forces pushing yields higher, including substantial AI-related financing needs, persistent fiscal deficits and rising JGB yields, remain in place."

"If long-end yields are effectively capped, a weaker USD may be part of the trade-off to maintain the attractiveness of US government debt for foreign investors. The broad-based USD weakness overnight also revived concerns about currency debasement, supporting demand for both gold and the CHF, which shares many of gold's safe-haven and zero-yield characteristics."

"Lower yields driven by the buyback announcement have shifted market attention back to the Fed. The July FOMC minutes showed policymakers are discussing the possibility of further rate hikes but have yet to conclude that near-term tightening is warranted. Economic data released since the July meeting has also reduced the urgency for additional policy tightening."

"The next key event is Fed Chair Warsh's speech at the Kansas City Fed's Jackson Hole symposium next week. In the absence of explicit forward guidance, we do not expect a notably hawkish message. If the Fed remains on hold, the USD is likely to stay under pressure in the near term."

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

• NZD/USD rises as the New Zealand Dollar gains on expectations of a September RBNZ interest rate hike.
• The US Dollar may struggle as US Treasury intervention works to stabilize domestic bond markets and cap yields.
• US-Iran geopolitical tensions intensify within the critical Strait of Hormuz.

NZD/USD extends its gains for the second successive day, trading around 0.5950 during the European hours on Thursday. The pair appreciates as the New Zealand Dollar (NZD) gains on expectations of another rate hike from the Reserve Bank of New Zealand (RBNZ) in September.

NZD trades above average as BNY questions pricing for further RBNZ hikes

Strategists at BNY observe that the Kiwi “is now trading slightly above the rolling 12-month average,” but they remain unconvinced by prevailing rate market assumptions. The bank notes that “we continue to doubt the current market pricing of interest rates expectations, where two more Reserve Bank of New Zealand (RBNZ) hikes are expected by year-end.” While acknowledging that “domestic activity remains robust,” BNY argues that “inflation expectations remain relatively well-anchored,” tempering the case for additional tightening despite the currency’s firm tone.

The NZD/USD pair holds ground as the US Dollar (USD) may face challenges amid the US Treasury Department's decision to stabilize domestic bond markets. To curb surging yields and alleviate market liquidity concerns, the Treasury announced plans to at least double its buyback operations for long-dated securities maturing in 10 to 30 years. This increased intervention aims to cap long-term borrowing costs and enhance overall global US Dollar liquidity, which could ultimately exert downside pressure on the currency moving forward.

However, the Greenback may receive safe-haven support from geopolitical friction in the Strait of Hormuz, where tensions between the US and Iran have intensified. While former President Donald Trump noted that oil transit continues and expressed openness to negotiations with Tehran, elevated risk aversion continues to favor the US currency.

Technical Analysis:

In the daily chart, NZD/USD trades at 0.5950, maintaining a bullish near-term bias as spot holds above both the nine-period and 50-period Exponential Moving Averages (EMAs). The pair has extended its recovery from last week’s lows, while the 14-day Relative Strength Index (RSI) at 66.23 approaches overbought territory, hinting that upside momentum is strong but could become stretched if buyers continue to chase highs.

On the downside, initial support is seen at the short-term nine-period EMA near 0.5901, with the broader bullish structure reinforced by the 50-period EMA at 0.5838 further below. On the topside, momentum remains constructive as long as RSI stays elevated. However, its proximity to the overbought band suggests that gains from the current 0.5950 area may increasingly face profit-taking rather than clear-cut technical resistance.

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

Societe Generale’s Kunal Kundu says the Reserve Bank of India's (RBI) August 2026 Monetary Policy Committee (MPC) minutes reveal a more hawkish inflation assessment than the policy statement suggested. The minutes indicate that the easing cycle has effectively ended, with the August decision better viewed as a hawkish pause. Societe Generale expects an initial 25bp rate hike in December 2026, followed by another 25bp increase in the first half of 2027.

RBI minutes point to tightening bias

"The minutes of the RBI’s August 2026 Monetary Policy Committee (MPC) meeting reveal a distinctly more hawkish assessment of inflation than was apparent from the policy statement released on August 5."

"More significantly, Deputy Governor Poonam Gupta stated that the scope for further easing “does not seem to exist” and that a case for a rate increase could emerge during the year."

"Rather than a dovish pause that preserved room for another rate cut, the minutes suggest that the easing cycle has effectively ended."

"The August decision is therefore better characterised as a hawkish pause, with the RBI awaiting evidence that the inflation shock is persistent or broad-based before raising rates."

"We, therefore, continue retain our expectation of an initial 25bp policy rate increase at the December 2026 MPC meeting, followed by another increase of a similar magnitude in either Q1 or Q2 2027, before the shallow tightening cycle comes to an end."

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

Here is what you need to know on Thursday, August 20:

The US Dollar (USD) came under heavy selling pressure in the American session on Wednesday after the Treasury Department unexpectedly announced that it will double the size of some long-dated debt buyback operations to support market liquidity. In the European morning on Thursday, market participants digest the implications of this development and await mid-tier macroeconomic data releases from the US, including weekly Initial Jobless Claims and Philadelphia Fed Manufacturing Survey for August.

The yield on 30-year US Treasury bond, which hit its highest level in 19 years on Tuesday, declined sharply and fell nearly 2% on Wednesday, while the yield on the 10-year reference declined 1.4%. In turn, the USD Index fell 0.9% and touched its lowest level in nearly three months below 99.00. In the European morning on Thursday, the USD Index holds steady at around 98.80.

In the meantime, the minutes of the Federal Reserve's (Fed) July policy meeting showed late Wednesday that many participants judged higher rates would likely be necessary if inflation fails to decline, while a few opted out for an immediate hike, saying it could avoid the need for further increases later.

US Dollar faces policy headwinds but retains defensive appeal

Deutsche Bank’s George Saravelos argues that the latest buyback initiative amounts to a “soft-form financial repression policy aimed at containing the long-end of the US yield curve,” and warns this is “negative for the Dollar.” His case, Deutsche Bank notes, is that “if the market price of US Treasuries isn’t ‘allowed’ to adjust lower, then the foreign exchange price of Treasuries owned by foreign investors has to adjust via a weaker Dollar.”

BNY’s strategists acknowledge a “growing list of Dollar-negative catalysts – from the July FOMC to renewed concerns around US fiscal policy and real-rate support” but caution that history “argues against being aggressively short the greenback as a portfolio hedge.” They highlight that in periods when “bonds and equities sell off together, particularly around supply-driven inflation shocks, the USD has remained the most reliable source of protection,” while traditional “quality” currencies have delivered only “inconsistent relative resilience.”

Late Wednesday, US President Donad Trump announced that they will launch an unprecedented "crushing economic operation" against Iran and warned that any countries offering support to Iran will also face severe financial retaliation. In response, Iranian Foreign Minister Abbas Araghchi said that this decision by Trump would only bring further defeat to Washington. Crude Oil prices hold steady early Thursday, with the barrel of West Texas Intermediate (WTI) trading in a tight channel at around $84.50 in the European morning.

EUR/USD gained more than 0.8% on Wednesday and continued to stretch higher during the Asian trading hours on Thursday, touching a fresh three-month peak in the process. In the European morning, the pair stays in a consolidation phase below 1.1700.

GBP/USD trades at its highest level since early May above 1.3600 early Thursday following Wednesday's upsurge.

USD/JPY declined nearly 1% on Wednesday before staging a modest rebound early Thursday. At the time of press, the pair was trading slightly below 158.50, rising 0.15% on a daily basis.

Gold corrects lower and trades below $4,500 after hitting its highest level since late May above $4,520.

United Overseas Bank’s Quek Ser Leang and Lee Sue Ann note AUD/USD retested recent highs near 0.7130 but momentum has not strengthened markedly. They still see upside risk toward 0.7150 and potentially 0.7175 over the next days, yet stress that the pair must break clearly above 0.7150 while holding above 0.7070, with support at 0.7110 and 0.7090 intraday.

Australian Dollar needs clear break higher

"24-HOUR VIEW: AUD rose and retested Monday’s high of 0.7129 yesterday before closing at 0.7125 (+0.54%). Despite the advance, upward momentum has not increased significantly. While there is a chance for AUD to rise toward 0.7150, it might not be able to break above this level. Support is at 0.7110, followed by 0.7090."

"1-3 WEEKS VIEW: Tracking our positive AUD view since early this month, we highlighted on Tuesday (18 Aug, spot at 0.7110) that “the risk remains on the upside, and the next level to monitor is 0.7150.” Yesterday, AUD dipped below our ‘strong support’ level at 0.7070 (low was at 0.7067) before rising sharply to 0.7129. While further AUD strength is not ruled out, it must first break clearly above 0.7150 before a move to 0.7175 can be expected. The likelihood of AUD breaking clearly above 0.7150 will remain intact as long as AUD holds above 0.7070."

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

• The USD Index languishes just above three-month lows at 98.75 after dropping 0.86% on Wednesday.
• US Treasury's plan to boost long-term bond purchases sent the Greenback tumbling across the board.
• Bearish pressure remains high, but the oversold RSIs hint at an overstretched cycle,

The US Dollar (USD) took a beating on Wednesday after US Treasury Secretary Scott Bessent announced a plan to buy back long-term government debt to ease Bond yields. The USD Index (DXY), which measures the value of the Dollar against a basket of six majors, dropped nearly 0.9% on the day to find support at the three-month low of 98.75, which is being tested at the time of writing.

Deutsche Bank's Analyst George Saravelos affirmed that the initiative amounts to a “soft-form financial repression policy aimed at containing the long-end of the US yield curve, and this was negative for the Dollar.” Saravelos argues that “if the market price of US Treasuries isn’t ‘allowed’ to adjust lower, then the foreign exchange price of Treasuries owned by foreign investors has to adjust via a weaker Dollar,” effectively shifting the adjustment burden from bond valuations to the currency.

This news clouded the release of hawkishly leaning minutes of the Federal Reserve's July meeting, which reflected policymakers' commitment to hike interest rates in the near-term, unless inflationary pressures abate.

Technical Analysis: Oversold RSIs hint at an overextended cycle

Dollar Index Spot trades at 98.75, extending a bearish near-term bias after Wednesday's impulsive decline. Momentum indicators are deep into bearish territory, although the Relative Strength Index (14) has reached oversold levels in most timeframes, which suggests that some consolidation or even a bullish correction is on the cards.

Bears have been halted above the late May lows, at 98.75, with upside attempts capped so far. Below here, there are no clear support levels until the bottom of the April and May trading range, in the 97.65-97.80 area.

Upside attempts, on the contrary, are likely to be tested at a previous support area of 99.30 (August 16 lows) ahead of Wednesday's high, near 99.70 and the top of the last two weeks' trading range, right above the 100.00 psychological level.

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

• The Japanese Yen trades lower against its peers as elevated energy prices hit foreign reserves.
• Japan’s Trade deficit widens to JPY 634.5 billion in July from JPY 409.9 billion.
• Lower US bond yields have weighed on the US Dollar.

The Japanese Yen (JPY) is down against its major currency peers on Thursday, with USD/JPY trading 0.22% higher at around 158.50 during the European trading session. The Japanese currency underperforms as the Trade Deficit widens due to elevated energy prices.

Earlier in the day, Japan’s Ministry of Finance (MoF) reported that the Trade deficit widened to JPY 634.5 billion from JPY 409.9 billion. Investors expect the fiscal deficit to widen further to JPY 680 billion.

The international trade report showed that Imports surged 27.8% from the same month a year ago to a seasonally adjusted JPY 12.15 trillion, AP News reported. Japan’s exports growth also remained robust at 23.2%, faster than estimates of 19.9%.

On the monetary policy front, financial markets remain confident that the Bank of Japan (BoJ) will raise interest rates in the September meeting.

BoJ tightening path pulled forward as Standard Chartered adds extra hike to cycle

Analysts at Standard Chartered have brought forward their expectations for Bank of Japan policy tightening, now looking for the BoJ “to hike by 25bps on 18 September from October previously.” They also revise the subsequent path, stating that they “now expect two more 25bps hikes after September, in Q1- and Q3-2027, from 25bps hikes in October and Q2-2027,” implying an additional move this cycle and a steeper overall normalization trajectory.

Meanwhile, the US Dollar is under pressure against its other currency peers due to a sharp decline in United States (US) Treasury Yields. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades cautiously near its fresh seven-week low of 98.77 posted on Wednesday.

US bond yields decline significantly as the US Treasury Department unveils plans to double its long-maturity bond-buying to curb high borrowing costs.

USD/JPY Technical Analysis

In the daily chart, USD/JPY trades at 158.43, keeping a bearish near-term bias as spot remains below the 20-day Exponential Moving Average (EMA) at 159.59. The pair trades under this short-term trend proxy, suggesting topside attempts are likely to be capped while momentum stays soft, with the 14-day Relative Strength Index (RSI) hovering near 39 and signaling weak but not oversold demand.

On the topside, immediate resistance is located at the 20-day EMA at 159.59, which acts as the first barrier for any recovery attempts and reinforces the bearish tone while price holds beneath it. With no clear underlying support levels in the immediate data set, the focus remains on whether sellers can maintain pressure below 159.59, as a sustained break above this EMA would be needed to ease the current downside bias.

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

ING’s Chris Turner notes that US Treasury buy-back operations and a drop in longer-dated yields have supported equities and weighed on the Dollar. The July FOMC minutes were not particularly hawkish, leaving the US Dollar (USD) in a flat-to-lower profile and US Dollar Index (DXY) breaking below its recent range with scope for further downside.

Treasury support weighs on Dollar

"While increasing liquidity buy-back operations by $2bn might seem like rearranging deckchairs on the Titanic given the US national debt of $40tr, yesterday's intervention by the US Treasury has been warmly greeted by investors around the world."

"As ING's Padhraic Garvey writes, this unscheduled announcement tells us the Treasury's displeasure with the recent sell-off at the long end of the bond market. Clearly, a more structural solution such as fiscal consolidation is required for a more sustainable recovery in the bond market, but news that the US Treasury is going to be more vigilant about the long end has been welcomed."

"The 10bp drop in longer-dated US yields has lifted equities and seen the dollar soften, especially against high-beta currencies such as the Norwegian krone, New Zealand dollar and Swedish krona. The Bessent Put – or someone to watch over the US Treasury market – reduces one of the key threats to risk assets this summer and should see carry trade strategies remaining popular."

"At the same time, the minutes of the July FOMC meeting were not particularly hawkish and short-dated US yields actually fell 5bp after the release. This all leaves the dollar in a flat/lower pattern consistent with a 'Risk-on, Dollar-off' investment environment – EMFX typically does well at times like these."

"DXY unexpectedly broke down from its 99.40-100.00 range yesterday and can probably drift lower to 98.65. The next stop would be 98.00 should risk assets build another leg higher on this more activist US Treasury."

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