Forex News

Commerzbank economists Dr. Jörg Krämer, Dr. Vincent Stamer and colleagues argue that Middle East crude exports have nearly returned to pre-war levels thanks to dark transits through the Strait of Hormuz. They expect high risk premia to fade, with Oil futures falling from about USD 104 toward USD 85 by year-end. Diesel and European natural gas prices should ease more slowly, keeping Euro area inflation elevated until mid-2027.

Risk premia and gradual de-escalation

"Oil exports from the Middle East have recovered significantly, thanks in part to the “dark transits” of tankers through the Strait of Hormuz that we had anticipated. Nevertheless, prices for fossil fuels such as crude oil, diesel and natural gas remain high. "

"If oil exports continue their upward trend thanks to dark transits, prices should soon start to fall. However, at USD 104 per barrel on the futures market, oil prices remain high."

"One reason is the persistently elevated level of risk: for several weeks now, the Houthis in Yemen have stepped up their involvement in the conflict, making passage through the Bab al-Mandab Strait at the southern end of the Red Sea even riskier. Iran itself could also intensify its attacks in the Persian Gulf again or target key pipelines in Saudi Arabia"

"This increases the risk premium embedded in oil prices. Over time, however, these risks should subside and oil prices should fall, moving towards USD 85 by year-end."

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

ING’s Chris Turner notes that the Dollar is benefiting from a flatter US yield curve as hot inflation data keeps short-dated rates elevated while long-dated Treasuries recover. He argues this backdrop typically favors the Dollar versus activity and emerging market currencies.

Dollar holds firm on curve dynamics

"The big takeaway this week has been the recovery of the long-end of the US Treasury market, even as inflation data continues to come in hot. Here it seems that investors are starting to find value in long-dated Treasuries and are viewing those as a middling hedge against a correction in the AI trade. Were the tech sell-off to gain momentum, that Treasury buying would move to the shorter end of the curve."

"Inflation data is keeping short-dated interest rates supported and has delivered a near 20bp flattening in the 2-10 year Treasury curve this week."

"Typically, an environment where the Fed is applying the brakes while growth prospects are being revised down is good for the dollar against activity and emerging market currencies. It is only when short end rates break lower that the dollar is ready to drop. And we are not there yet."

"Barring another big leg down in AI stocks and risk assets in general, expect the dollar to consolidate near recent highs. We would continue to expect some defensive outperformance of the Swiss franc in this environment."

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

• The US Dollar Index plunges to session lows near 101.60 on Friday from weekly highs near 103.00.
• The weekly chart shows a bearish engulfing candle in progress, a common indicator of trend reversals.
• FX analysts agree that doubts about AI profitability and overestimated Fed tightening bets might take a toll on the US Dollar in the coming months.

The US Dollar (USD) has depreciated sharply against most of its major peers over the last two days, hammered by a mix of lower US Treasury yields and dovish comments by Federal Reserve (Fed) officials. The US Dollar Index (DXY), which measures the Greenback's value against a basket of six majors, has retreated to the 101.60 area from weekly highs near 103.00, and is set for its first weekly decline in one month.

The weekly chart shows a bearish engulfing candle in progress, which is a common pattern for trend reversals. From a more fundamental perspective, analysts from some of the world’s major commercial banks observe solid reasons to support that view.

Dollar rally questioned as Fed signals and AI risks temper upside

Analysts at MUFG/BTMU observe that Fed Chair Warsh “gave little away today that underlines the potential for surprises ahead under this new Fed regime,” noting that “we will likely get a better understanding of that when numerous working groups report findings, including on AI and inflation.”

The bank notes that “a December rate hike is still very likely, but the pricing of hikes in 2027 looks overdone,” a view also expressed by New York Fed President Williams, “one of the more senior members of the FOMC,” as MUFG/BTMU highlights in a note.

The OCBC puts the focus on the AI boom: “AI has supported US growth, equities, yields and the USD. But that strength cuts both ways. If the investment cycle cools, those same supports could reverse, leaving the dollar vulnerable even in a risk-off environment.” OCBC experts caution that “the USD does not always benefit from risk aversion. When the shock originates in the US, as with the recent AI financing jitters, pressure on US assets can overwhelm the USD’s traditional safe-haven appeal. That matters because AI has become an important pillar of US growth resilience.”

Strong US data has failed to lift the US Dollar

Commerzbank experts note “surprisingly strong US consumer price data on Wednesday were followed yesterday by stronger-than-expected retail sales and producer price figures,” which “adds to the evidence that price pressures are becoming increasingly broad-based.”

The bank, however, observes that “the dollar was unable to hold on to its gains from Wednesday,” and argues that “for the dollar to receive lasting support, the market would need to price in more tightening overall than it did previously. So far, that has not happened. US rate expectations for the end of this year have barely moved in recent days.”

Along the same lines, DBS flags that “overall, the USD’s failure to sustain gains following the upside CPI surprise raises questions about the durability of its rally.” In their view, “the reversal in Treasury yields and in Fed hike expectations suggests that investors are mindful of growth and earnings risks from further tightening,” limiting the scope for a more persistent Dollar bid despite stronger data.

Societe Generale highlights that the Reserve Bank of India has taken proactive steps to support the Indian Rupee, deploying multiple FX-related measures and bond operations. The report notes a risk-off driven reversal in US yields that benefits the Rupee, alongside higher CPI and WPI inflation and a wider trade deficit. The tone is cautiously constructive for INR over the coming days.

RBI actions bolster INR resilience

"The proactive RBI defended the INR by implementing a broad set of FX-support measures this week, including the reintroduction of a dedicated oil import window, tighter restrictions on corporate hedging, limits on uncovered FX transactions, a ban on rebooking cancelled derivatives, and fresh open market operation (OMO) bond sales."

"These steps were complemented by extending FX curbs to GIFT City and broadening the use of risk reserves."

"Risk-off driven sharp reversal in US yields despite strong CPI provides major fillip for the INR."

"On data front, headline CPI accelerated to 5.54% yoy in September from 4.83% in August, while factory gauge WPI jumped to 11.39% yoy from 9.92%."

"Trade deficit widened to $30.2bn in September from $26.86bn in August."

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

Commerzbank’s Volkmar Baur describes a double bind for the New Zealand Dollar as rising monthly price indices signal higher CPI, while electronic card data show stagnating retail spending and likely negative real consumption. With markets pricing an 80% chance of a Reserve Bank of New Zealand rate hike in two weeks, he remains cautious and flags next week’s CPI as crucial.

RBNZ caught between inflation and growth

"Two data points released this morning nicely illustrate the difficult position the Reserve Bank of New Zealand currently finds itself in. The monthly price index, which covers roughly half of the components of the full CPI data that are only released quarterly, rose sharply to 5.2% year-on-year in September. Energy components were a major driver of the increase, but inflation excluding petrol and diesel also accelerated, from 3.2% in August to 3.6% year-on-year in September."

"At the same time, electronic card transactions point to stagnating retail sales. Seasonally adjusted spending fell by 0.4% compared with August, and even that figure was only cushioned by a marked increase in spending on petrol. Excluding petrol, spending declined by 0.7%."

"Moreover, these figures are nominal. Adjusting for price increases suggests that real consumption growth in New Zealand is currently likely to be clearly negative in year-on-year terms."

"The RBNZ therefore faces a difficult decision when it meets for its next monetary policy meeting in around two weeks. Given the renewed rise in inflation, the market currently assigns a probability of roughly 80% to a rate hike. However, the weakness of economic activity and the continued absence of visible second-round inflation effects make me somewhat more cautious."

"Against this backdrop, next week’s full CPI release will attract even more attention than usual."

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

• XAU/USD rallies for the second consecutive day and reaches session highs above $4,190.
• The US Dollar remains on the defensive amid dovish comments from Fed officials and lower US Treasury yields.
• Fed Chair Kevin Warsh praised the economic resilience at the IMF forum but failed to provide any monetary policy guidance.

Gold (XAU/USD) heads north for the second consecutive day on Friday, trading near $4,180, with bulls aiming for the $4,230 area, the top of October’s trading range. Precious metals have been boosted by lower US Treasury yields and dovish comments from Federal Reserve (Fed) officials this week, which have undermined speculative support for the Greenback.

US data released on Thursday showed that September's Producer Price Index (PPI) accelerated beyond expectations in September, following an overshoot consumer inflation report in the previous day. Also on Thursday, retail consumption showed a surprising resilience in the face of escalating prices. 

The data, however, failed to lift the US Dollar as market expectations of a Fed interest rate hike in October remain low. A string of Fed officials suggested that the bank will stand pat at its next meeting, awaiting more insight into the economic impact of September’s interest rate hike.

The Federal Reserve Chairman, Kevin Warsh, spoke at the International Monetary Fund (IMF) forum in Bangkok earlier on Friday. Warsh praised the resilience of the US economy and reaffirmed the central bank’s commitment to fight inflation, but failed to provide any fresh hints about the bank’s near-term path.

Technical Analysis: Key resistance at the $4,230 area comes into focus

XAU/USD trades at $4,179, maintaining a bullish near-term bias with bulls aiming for the top of the last three weeks' horizontal range, in the $4,230 area. The 4-hour Relative Strength Index (14) is hovering in positive territory near 57, and the Moving Average Convergence Divergence (MACD) remains firmly above zero, hinting at moderate upside pressure.

Gold might find resistance at the $4,200 round area, ahead of the key $4,230 (October 2 high). A successful break of this level confirms a bullish reversal, aiming for the September 25 high at $4,315.

On the downside, initial support is at the intraday low near $4,150 ahead of the range bottom of $4,070. A bearish reaction below here negates the bullish view and increases pressure towards the late July, early August lows around the $4,000 psychological area.

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

• The Indian Rupee gains significantly this week amid weakness in US Dollar, RBIs fresh measures.
• Fed’s Warsh stresses price stability and AI-driven demand.
• The INR’s strength on the back of RBI’s measures could turn out to be short-lived.

The Indian Rupee (INR) gains almost 2% this week against the US Dollar (USD) on the back of weakness in the Greenback and forceful Reserve Bank of India’s (RBI) measures to curb the Greenback's demand.

As of writing on Friday, the USD/INR pair posts a fresh over five-week low at 94.69. In the European session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, revisits the six-week low near 101.67.

What weakened the US Dollar this week?

Strategists at OCBC highlight that AI-linked investment has become a key support for the US macro and market story, noting that “AI has supported US growth, equities, yields and the USD.” However, they caution that “that strength cuts both ways.” If the investment cycle cools, “those same supports could reverse, leaving the Dollar vulnerable even in a risk-off environment.”

OCBC stresses that “the USD does not always benefit from risk aversion.” When the shock is US-centric, “as with the recent AI financing jitters, pressure on US assets can overwhelm the USD’s traditional safe-haven appeal.” This is significant, they argue, because “AI has become an important pillar of US growth resilience.”

In FX terms, OCBC describes “an unusual combination: risk-off, lower Treasury yields and a softer USD.” They emphasise that “this is not the typical global risk-off shock where investors simply rush into USD.” Instead, “if the source of stress is US-centric, Treasury safe-haven demand can push yields lower even as weaker US asset returns reduce the relative appeal of the USD.”

For now, OCBC views “the latest AI jitters as a bump rather than a break in the broader investment story.” While “concerns look overdone, but they are far from over,” the episode is seen as “a useful reminder for FX.” As they conclude, “the more the USD benefits from AI-driven US growth resilience on the way up, the more exposed it becomes if that support starts to fade.”

The US Dollar extends its weakness on Friday, following remarks from Federal Reserve (Fed) Chair Kevin Warsh at the Fireside Chat with International Monetary Fund (IMF) Managing Director Kristalina Georgieva, in which he stressed achieving price stability, surging investment, and Artificial Intelligence (AI)-led structural growth.

As usual, Fed Chair Warsh has not delivered any meaningful remarks on the monetary policy outlook. Warsh has already stated explicitly that “so-called forward guidance” is not appropriate in the current scenario.

Meanwhile, financial markets remain confident that the Fed will leave interest rates unchanged at the October meeting, but will hike them in December, according to the CME FedWatch tool.

This week, the major trigger for a significant appreciation in the Indian currency remains RBI’s measures to curb the demand for the US Dollar. However, market experts doubt the sustainability of INR’s strength.

RBI steps steady INR, but OCBC warns rebound may prove fleeting

Strategists at OCBC highlight that RBI’s measures of limiting access to certain INR non-deliverable derivatives to hedging purposes, extending the 20% cash reserve requirement to banks’ own qualifying FX hedges, and the special USD window for oil companies are merely a shift in demand for the currency from the spot market rather than a reduction in India’s underlying US Dollar requirements.

OCBC concludes that “we may still see room for some near-term INR gains, but the sustainability of the move will depend on whether portfolio outflows moderate and external pressures from oil prices and US yields ease.” For now, they judge that the latest policy steps “may help establish a firmer near-term footing for INR, rather than mark a decisive reversal in its broader depreciation trend.”

Technical Analysis: USD/INR sees more downside to near 94.30

On the daily chart, USD/INR trades below 95.00, keeping a bearish near-term bias as it remains below the 20-period Exponential Moving Average (EMA) at 95.76.

The positioning under this key dynamic barrier suggests the recent slide is still in play, while the Relative Strength Index (RSI) at 32.51 hovers just above oversold territory, hinting that downside momentum is slowing but not yet reversing.

On the topside, immediate resistance is located at the 20-period EMA around 95.76, where any recovery would likely face initial selling pressure. On the downside, the September 3 low at 94.29 is the key support level.

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