Forex News

• AUD/USD surges as investors focus on Australia’s upcoming labor market report.
• Stronger US ADP employment data boosts the US Dollar.
• Australia’s Employment Change is expected to rise by 17.5K, while the Unemployment Rate is forecast to remain at 4.3%.

AUD/USD advances to the vicinity of the 0.7150 region on Wednesday as the United States (US) Dollar (USD) continues to lose momentum despite upbeat US labour market data on Tuesday. Meanwhile, traders now turn their attention to the upcoming Australian employment report.

Data-wise in the US, the latest ADP employment report showed that US private employers added 42,250 jobs on a four-week average, reinforcing expectations that the Federal Reserve (Fed) may maintain a cautious stance on interest rate cuts. The stronger labour market data boosted US Treasury yields and initially supported the Greenback across the board.

Investors are now closely watching Australia’s April Employment Change report, scheduled for release on Thursday. Market expectations point to an increase of around 17.5K jobs, while the Unemployment Rate is expected to remain steady at 4.3%. A stronger-than-expected labor market reading could reinforce expectations that the RBA may keep rates elevated for longer.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7167. The pair holds a mildly constructive stance, trading above the 20-period Simple Moving Average (SMA) at 0.7136 yet capped by the 100-period SMA at 0.7194, leaving the broader tone neutral while intraday pressure skews modestly higher. The Relative Strength Index (RSI) has recovered to around 55, hinting that buyers have regained some control after an earlier oversold phase but still face nearby overhead supply.

On the topside, immediate resistance aligns at the nearby horizontal barrier around 0.7174, with the 100-period SMA at 0.7194 forming the next hurdle if bulls extend the latest bounce. On the downside, initial support is seen at the 20-period SMA at 0.7136, closely backed by horizontal levels around 0.7135 and 0.7128, while a break below 0.7115 would expose a deeper corrective phase within the broader range.

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

(This story was corrected on May 20 at 16:30 GMT to say that the AUD/USD is up following US Dollar weakness)

• ECB policymakers increasingly see a June rate hike as likely, according to sources.
• Discussions around a possible July move remain open with no clear commitment.
• Several members prefer to wait for September economic projections before considering another step.

The European Central Bank (ECB) could raise interest rates in June as the inflation outlook shifts toward a more adverse scenario, according to Reuters citing sources familiar with the discussions. The development suggests growing concern within the institution over the risk of more persistent inflationary pressures.

However, the sources indicate that policymakers are likely to remain cautious regarding the next stage of the monetary policy cycle. A decision for July does not appear predetermined, and the institution’s communication could deliberately retain flexibility to avoid sending an overly firm signal to markets.

According to Reuters, several Governing Council members would prefer to wait for the September economic projections before deciding whether an additional step is necessary. This approach reflects a willingness to gain more visibility on the inflation path and on evolving economic conditions before entering a new phase of monetary tightening.

Key takeaways

ECB rate hike very likely in June as inflation outlook moving towards adverse scenario.
ECB likely to be noncommittal about July.
Many ECB policymakers would prefer to wait until September projections to decide if follow-up step needed.

Market reaction

The Euro (EUR) reacted positively to the Reuters report, with EUR/USD climbing toward 1.1630 at the time of writing, up 0.22% on the day.

• Iranian officials say growing pressure will not force Tehran to change its position.
• Iran says it has used the ceasefire period to rebuild military capabilities.
• Saudi Arabia supports extending negotiations and calls for urgent diplomatic efforts to avoid escalation.

Tensions between Iran and the United States (US) remain in focus after statements from Iranian and Saudi officials reported by Reuters highlighted both the risk of renewed confrontation and ongoing efforts to maintain diplomatic channels.

Iran's parliament speaker said signs from the "enemy" point to efforts to trigger a new round of conflict, adding that Iranian forces used the ceasefire period to rebuild their strength. He also said mounting economic pressure would not force Tehran to surrender and described relations with the United States as a "war of wills."

Meanwhile, Saudi Arabia welcomed the decision to give US-Iran negotiations more time and urged Tehran to respond quickly to mediation efforts. Riyadh also said extending talks could help restore security in the Strait of Hormuz and support broader regional stability.

Key takeaways

Iran's parliament speaker says obvious and hidden moves of the 'enemy' show they are seeking a new round of war.

Iran's parliament speaker says our military forces have used the ceasefire opportunity in the best way to rebuild their strength.

Iran's parliament speaker says mounting economic pressure and blockade will not compel Iran to surrender.

Iran's parliament speaker says Iran and the US are in a 'war of wills'.

Saudi Arabia appreciates US president response in granting negotiations with Iran an additional opportunity to reach an agreement.

Saudi Arabia says it hopes Iran responds urgently to mediation efforts to avoid escalation.

Saudi Arabia welcomes US efforts to restore security in Strait of Hormuz.

Saudi Arabia says extending US-Iran negotiations could help restore Hormuz shipping security.

Saudi Arabia says it supports efforts aimed at reaching lasting peace in region, world.

Market reaction

The US Dollar Index (USD) remains under pressure on Wednesday, losing 0.17% on the day, trading around 99.15 at the time of writing. West Texas Intermediate (WTI) Oil loses 3.89% at around $99.35 at the time of press.

Bank of England (BoE) Governor Andrew Bailey said that financial market tightening gives the central bank some time to assess whether to raise rates or leave them where they are. Bailey made the comments while speaking to the Treasury Committee on Wednesday.

Key takeaways:

Financial market tightening gives us some time to assess whether to raise rates.

We have a softening picture for growth and the labor market.

I don't think inflation expectations are de-anchored.

We see a continued gradual reduction in private sector wage settlements.

Today's food price inflation was surprisingly benign.

Money supply isn't flagging inflation pressure.”

UOB’s Global Economics & Markets Research, led by Julia Goh and Loke Siew Ting, highlights that Malaysia’s exports surged in April, driven by robust E&E demand and record re-exports, widening the trade surplus. However, the team maintains a cautious view, keeping its 2026 export growth forecast at 2.5% as geopolitical risks, Middle East supply disruptions and potential US tariff measures cloud the outlook.

Exports surge but outlook stays cautious

"Apr’s strong export performance appears exceptional, reflecting swift business responses to distortions from the prolonged Middle East conflict and closure of Strait of Hormuz. Nonetheless, geopolitical risks remain elevated, with rising possibility of renewed US–Israel action on Iran and potential re-emergence of US tariff risks after the end of the investigation under the Section 122 and the expiry of temporary 10% global tariff in Jul. Against this backdrop, we maintain a cautious outlook and our 2026 export growth forecast at 2.5% for now (BNM est: +8.6%; 2025: +6.4%), despite strong year-to-date growth of 19.0% as of Apr."

"This strong goods trade surplus, alongside an expected, sustained services surplus, raises the likelihood of an upside surprise in the current account surplus this year (UOB est: +MYR38.0bn; BNM est: +MYR45.6bn; 1Q26 actual: +MYR15.2bn), barring unforeseen shifts in global or domestic economic conditions. We will reassess our forecast when greater clarity emerges on the Middle East conflict and related developments."

"The Malaysian government has warned this month (May) that manufacturers may face production stoppages as early as Jun due to supply disruptions from the Middle East conflict while inventories are increasingly depleted. Although firms are sourcing alternatives, substitutes may be delayed or fail to meet required specifications."

"Nonetheless, geopolitical tensions may re-escalate, with increasing risk of renewed US–Israel action on Iran and a potential return of US tariff measures following the July expiry of Section 122 provisions and the temporary 10% global tariff. US President Trump warned on Tue (19 May) that “we may have to give them another big hit” if Iran fails to agree to US terms within days, underscoring heightened risk despite his earlier decision to call off planned military action since a truce was agreed to on 8 Apr."

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

• Gold rebounds modestly on Wednesday as US Treasury yields pull back from recent multi-month peaks.
• Rising energy prices tied to the US-Iran conflict reinforce expectations that the Fed may keep rates higher for longer.
• XAU/USD remains capped below the Bollinger mid-line resistance near $4,625 on the daily chart.

Gold (XAU/USD) holds firm on Wednesday after falling 1.85% the previous day, as a pause in the global bond sell-off helps reduce upward pressure on Treasury yields and offers some support to the non-yielding metal. At the time of writing, XAU/USD is trading around $4,492 after hitting an intraday low near $4,453, its weakest level since March 30.

The benchmark US 10-year Treasury yield eases to around 4.623% after climbing to a 16-month high of 4.687% on Tuesday, while the 30-year yield slips to 5.154% after touching 5.200%, its highest level since July 2007.

Despite the modest pullback in Treasury yields, they remain elevated overall as rising Oil-driven inflation risks tied to the ongoing US-Iran war continue to fuel expectations that major central banks, including the Federal Reserve (Fed), may need to keep monetary policy tighter for longer or even raise interest rates.

A higher interest rate environment typically weighs on non-yielding assets such as Gold, as rising Treasury yields increase the opportunity cost of holding Bullion, and this continues to act as a key headwind for the precious metal.

Markets are increasingly pricing in the likelihood of a Fed rate hike by year-end, with the CME FedWatch Tool indicating nearly a 40% probability of a 25-basis-point (bps) increase by December, up from around 29% a week ago.

Traders now look ahead to the release of the Fed’s April Meeting Minutes later on Wednesday for further clues on the future interest rate path and how policymakers are assessing the inflationary impact of rising energy prices.

Philadelphia Fed President Anna Paulson said on Tuesday that policy is “mildly restrictive” and that such restrictiveness is helping to keep inflation pressures in check while the labor market remains stable. Paulson added that “an appropriate rate increase” is possible if growth exceeds potential or inflation threats arise.

On the geopolitical front, traders continue to monitor developments surrounding the US-Iran talks, as indirect negotiations remain stalled over disagreements related to Iran’s nuclear programme, keeping fears of further escalation in focus.

Meanwhile, the US Senate moved forward with a War Powers Resolution that could restrict Trump from launching military action against Iran without approval from Congress.

This uncertainty surrounding the US-Iran conflict, combined with hawkish Fed expectations, keeps the US Dollar firmly supported and adds further pressure to Gold. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 99.36, hovering near six-week highs.

Technical Analysis: XAU/USD tests lower Bollinger support as downside bias persists

On the daily chart, XAU/USD maintains a bearish near-term tone as it holds below the 20-period Bollinger Simple Moving Average around $4,625 while hovering just above the lower Bollinger band support at roughly $4,465. The Relative Strength Index (RSI) slips to about 38 and the Moving Average Convergence Divergence (MACD) remains in negative territory, which together suggest weakening momentum and leave Gold vulnerable to further downside while capped by the mid-band.

On the topside, initial resistance emerges at the Bollinger mid-line around $4,625, followed by the upper band near $4,785, with a more strategic ceiling at the horizontal level of $5,000. On the downside, immediate support is seen close to the lower Bollinger band around $4,465, ahead of the horizontal floor at $4,350, where a break would likely reinforce the prevailing bearish bias.

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

• USD/CAD hovers near one-month highs as geopolitical uncertainty keeps the US Dollar firmly supported.
• Traders continue to assess the inflationary impact of rising Oil prices tied to the Middle East conflict.
• Fears of prolonged disruptions through the Strait of Hormuz keep Oil prices elevated and limit deeper losses in the Canadian Dollar.

USD/CAD trades with a mild upside bias on Wednesday, supported by a firmer US Dollar (USD), while a modest pullback in Crude Oil prices weighs slightly on the commodity-linked Canadian Dollar (CAD). At the time of writing, the pair is trading around 1.3760, hovering near one-month highs.

Trading conditions remain relatively calm on Wednesday as investors continue to monitor developments surrounding the US-Iran war, while bracing for the possibility of renewed military strikes after both sides exchanged fresh threats.

US President Donald Trump said on Tuesday that military action against Iran could still resume if talks fail, adding that “[W]e may have to give Iran another hit” and giving Tehran “two to three days” to reach a deal. Meanwhile, Iran warned that the war could spread far beyond the Middle East if the United States and Israel resume their attacks.

This backdrop keeps the US Dollar firmly supported, with the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trading around 99.39 near six-week highs.

However, fears of prolonged supply disruptions through the Strait of Hormuz continue to keep energy markets on edge, keeping Oil prices elevated and limiting stronger upside moves in USD/CAD.

Meanwhile, rising Oil prices continue to stoke inflationary pressures, adding pressure on major central banks to keep interest rates elevated or raise borrowing costs further. In the United States, inflation accelerated sharply in April, leading traders to increasingly price in the possibility of a Federal Reserve (Fed) rate hike by year-end.

In contrast, Canadian inflation data released on Tuesday surprised to the downside, reinforcing expectations that underlying inflation remains relatively contained. The softer data also reduced expectations of near-term interest rate hikes from the BoC, adding further pressure on the Canadian Dollar.

ING strategist Frantisek Taborsky highlights that risk-off global sentiment is pressuring Central and Eastern European (CEE) currencies, pushing EUR/PLN and EUR/CZK towards the upper ends of recent ranges. He warns downside risks are building as the US Dollar (USD) rallies and notes delayed economic impacts. While remaining bullish on Hungary, he flags profit-taking in Hungarian Forint (HUF) and a dovish Hungarian National Bank (NBH) stance that could undermine FX carry if EUR/HUF breaks above 365.

Risk-off mood pressures regional FX

"The risk-off global sentiment is clearly not in favour of CEE currencies, and as we discussed here on Monday, this is a reason for us to be bearish on FX here. CEE currencies have been trading very well since the start of the conflict, and even this week, despite some weakness, we have not seen a break from the usual ranges. For now, we will rather move towards the upper edges of EUR/PLN 4.230-260 and EUR/CZK 24.250-400."

"On the other hand, the risks are building on the downside with the rally of the US dollar in recent days. We will also only see the negative impact on the economy and current account in the numbers in the coming months."

"The Hungarian forint, as usual, has been in its own universe since the April elections, but here too we see some influence from the global trends. The local story saw most of the expected headlines after the elections and investors may see some exhaustion here. We remain bullish on Hungary, but of course people will want to take some profit and FX is, in our view, the first candidate given the long positioning within HUF assets."

"In addition, the National Bank of Hungary has indicated a dovish stance which will undermine FX carry somehow. EUR/HUF closed at 362 yesterday. It doesn't mean much for now, but if we were to go above 365, the level where the market started to price in NBH rate cuts, someone may start unwinding rate cut bets and FX weakness would start to be passed into the rates market as well."

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

Geoff Yu at BNY highlights that Latin American (LatAm) equities have attracted strong inflows thanks to improved terms of trade and resilient currencies. However, higher real rates and tighter financial conditions could eventually pressure earnings, potentially triggering softer equity performance and increased currency hedging demand.

Regional stocks resilient but vulnerable

"LatAm economies are also exposed to higher energy prices, but there’s a clearer case for terms-of-trade improvement due to better supply resilience and increased demand for their own raw exports."

"This helped LatAm currencies withstand the shock from the first weeks of the conflict."

"Consequently, the region is still seeing strong inflows into equities, but we’re mindful that equities normally have an inverse relationship with real rates."

"Corporates and households will face tight financial conditions in the near term."

"If this starts to weigh on earnings, we’d expect some softness or at least a pickup in currency hedging."

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