Forex News

OCBC strategists Sim Moh Siong and Christopher Wong highlight that resilient US data, sticky inflation and elevated energy prices are pushing US Treasury yields higher and supporting the US Dollar. They flag next week’s US labour report as a key risk, noting that falling jobless claims raise the chance of an upside surprise that could reinforce expectations for further Fed tightening.

Firm data keeps USD supported

"Resilient US economic data, elevated energy prices and persistent inflation concerns continue to drive Treasury yields higher, underpinning the USD while weighing on rate-sensitive and carry oriented assets."

"Next week's US labour market report is a key event risk. Bloomberg consensus expects non-farm payrolls to rise by 100,000 in September, down from 162,000 in August, while the unemployment rate is projected to remain at 4.1%."

"Although Fed Chair Warsh has indicated a preference for the four-week average of initial jobless claims as a more timely gauge of labour market conditions, the payrolls report remains the market's primary focus."

"With initial jobless claims trending lower through the month, the risk of an upside payrolls surprise is increasing. A stronger-than-expected employment report could reinforce market expectations for further Fed tightening, keeping US yields elevated and providing additional support for the USD."

"Recent Fed rhetoric has also remained hawkish. New York Fed President Williams and Cleveland Fed President Hammack warned that inflation risks remain skewed to the upside, while Philadelphia Fed President Paulson said "modest further tightening" may still be warranted if inflation fails to moderate."

"Market pricing currently implies around a 70% probability of another 25bp rate hike in October, highlighting the market's growing conviction that the Fed's inflation fight is not yet over."

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

• AUD/USD rebounds 0.20% on Friday but remains on track for a significant weekly decline.
• The US Dollar retreats after surging Treasury yields and hawkish Fed expectations boosted the currency this week.
• The Trump-Xi summit delivers conciliatory rhetoric but few concrete breakthroughs on major geopolitical and trade issues.

AUD/USD edges higher on Friday, trading around 0.7025 at the time of writing, up 0.20% on the day. The Australian Dollar (AUD) benefits from a moderate correction in the US Dollar (USD), although the pair remains on track for a sharp weekly decline after approaching the psychological 0.7000 level earlier in the day.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, declines by 0.30% to 100.95 on Friday. The pullback comes after a strong week for the US currency, driven by rising US Treasury yields and increasing expectations that the Federal Reserve (Fed) will tighten monetary policy further.

Recent strong US business activity data, alongside persistent wage and energy price pressures, have reinforced expectations that interest rates may need to remain restrictive. Several Fed officials have also maintained a hawkish tone. New York Fed President John Williams said it is reasonable to expect another rate increase by the end of the year, while Philadelphia Fed President Anna Paulson suggested that modest additional increases might be necessary to bring inflation back toward the central bank's target.

Markets have consequently increased their bets on another Fed move, pushing US Treasury yields sharply higher and widening the monetary policy divergence with several other major economies.

Friday's US data offer little reason for investors to substantially reconsider that outlook. The University of Michigan Consumer Sentiment Index was revised higher to 48.1 in September from the preliminary estimate of 47.8, although it remains well below August's 51.7 reading. The Consumer Expectations Index is also revised up to 46.3 from 45.8 but declines sharply from 51.5 in the previous month.

Meanwhile, inflation expectations remain elevated. The University of Michigan's 1-year Consumer Inflation Expectations stayed unchanged at 4.6%, while the 5-year measure remained at 3.4%. Persistent inflation expectations could reinforce the Fed's cautious approach to monetary policy and limit the scope for a sustained US Dollar correction.

Meanwhile, the meeting between US President Donald Trump and Chinese President Xi Jinping provided limited support to the Australian Dollar despite conciliatory signals from both leaders. Xi described relations between Washington and Beijing as having reached a new historical milestone, while both sides signal their willingness to pursue cooperation and extend their bilateral trade truce.

However, the summit has so far produced few concrete breakthroughs on sensitive issues such as trade, artificial intelligence and Taiwan. Developments in China are particularly relevant for the Australian Dollar because China is Australia's largest trading partner, meaning an improvement in relations between Washington and Beijing can generally support sentiment toward the Aussie.

On the domestic front, expectations that the Reserve Bank of Australia (RBA) will raise interest rates next week provide some underlying support to the Australian currency. Australia's Unemployment Rate increased to 4.6% in August from 4.5% previously, but the modest deterioration in the labour market has not significantly altered expectations for the central bank's upcoming decision.

The combination of prospective RBA tightening and Friday's US Dollar correction helps AUD/USD regain some ground after rebounding near 0.7000. Nevertheless, the pair remains pressured on a weekly basis as higher US yields and increasingly hawkish Fed expectations continue to favour the Greenback.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7027, keeping a bearish near-term tone as it holds below the 100-period simple moving average (SMA) at 0.7070 and the 200-period SMA at 0.7095. The pair is trying to stabilize after recent losses, with the Relative Strength Index (14) at 52.3 hinting at mildly improving momentum, yet price action remains capped by overhead moving average and horizontal resistance layers.

On the topside, initial resistance emerges at 0.7045, ahead of a thicker supply band formed by the 100-period SMA at 0.7070 and the nearby horizontal barrier at 0.7075, with further resistance at 0.7095 and 0.7105 before the more distant ceiling at 0.7140. On the downside, the first support is located at 0.7004, followed by a lower structural floor at 0.6984; a clear break beneath these levels would likely expose fresh selling pressure, while holding above them keeps scope for a corrective bounce within the broader bearish setup.

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

Brown Brothers Harriman’s (BBH) Elias Haddad reports that Banxico left its policy rate at 6.50% for a third consecutive meeting and removed prior guidance to keep it fixed, while stressing it does not need to match expected Federal Reserve hikes. Haddad says the bar for tightening remains high if Mexican inflation follows forecasts, and notes that Mexico’s positive real yields and external backdrop support the Peso despite a less negative US-Mexico rate differential.

Policy hold with supportive MXN backdrop

"As was widely expected, Mexico’s central bank (Banxico) decided unanimously to keep the policy rate unchanged at 6.50% for a third straight meeting yesterday."

"Banxico scrapped its previous guidance to keep the policy rate at 6.50% but cautioned it need not match the Fed’s expected rate increases."

"That suggests the bar for a hike remains high as long as Mexico inflation tracks the bank’s forecast."

"The swaps curve implies nearly 125bps of tightening in the next twelve months."

"Regardless, Mexico’s positive real yields, favorable balance of payments backdrop and energy exposure more than offsets the drag to MXN from less negative US-Mexico rate differentials."

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

UOB’s Quek Ser Leang and Lee Sue Ann note USD/JPY has risen for five straight sessions to 158.83, with momentum still positive but indicators deeply overbought. They expect near-term consolidation between 158.30 and 159.00, yet see scope for a test of major resistance at 159.60 as long as the pair holds above the revised strong support at 157.60.

Dollar rally stretches against Japanese Yen

"24-HOUR VIEW: USD closed higher for the fifth straight day yesterday, rising 0.34% to 158.83. Negative divergence on momentum indicators and overbought conditions suggest that instead of continuing to rise, USD is more likely to consolidate between 158.30 and 159.00 today"

"1-3 WEEKS VIEW: Tracking our positive USD view from early last week, we highlighted on Tuesday (22 Sep, spot at 157.30) that “further USD strength seems likely, but given the overbought conditions, any advance is expected to face firm resistance at 158.40.” We also highlighted that “to keep the momentum going, USD must hold above the ‘strong support’ level at 156.20.” USD tested the 158.40 level two days ago, and yesterday, it broke above 158.40 and rose to 159.03. Conditions remain deeply overbought, but USD could test the major resistance at 159.60 before the risk of a pullback increases. On the downside, the ‘strong support’ level is now at 157.60."

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

Commerzbank’s Thu Lan Nguyen notes that the Fed’s unanimous September rate hike has temporarily restored its credibility and supported the Dollar, prompting a lower EUR/USD year-end forecast to 1.15 from 1.17. However, they expect both US and euro area rate expectations to be revised down over 2027, ultimately weighing more on the US Dollar (USD) than the Euro (EUR) and allowing EUR/USD to gradually rise.

Fed credibility and shifting rate path

"As we expect the Fed to deliver one additional rate increase before year-end, major doubts about the central bank’s credibility are unlikely to resurface in the near term. We have therefore lowered our EUR/USD forecast for year-end from 1.17 to 1.15. Previously, we had expected the Fed to leave rates unchanged."

"For next year, however, we maintain our view that the Fed will not tighten monetary policy as aggressively as markets currently expect. Assuming the crisis in the Middle East gradually subsides, as we anticipate, the current inflation shock should also fade over the course of next year, eliminating the need for further rate hikes. In fact, we see a good chance that the Fed will cut rates by the end of 2027."

"We expect only one further rate hike in December, followed by unchanged rates through the end of 2027."

"As a result, a downward adjustment in euro area rate expectations is also likely to weigh on the euro next year. Why, then, do we still expect EUR/USD to rise over the course of 2027?"

"Consequently, the dollar is likely to face pressure not only from a downward revision of US rate expectations, but also from renewed concerns that Fed independence is being undermined by the White House. We therefore expect the dollar to come under greater pressure than the euro in the end, despite likely downward revisions to rate expectations on both sides of the Atlantic."

"Nevertheless, if relations between Iran and the US continue to improve, and energy prices consequently fall sharply, EUR/USD could well come under further downward pressure. However, we would not view any resulting dollar strength as sustainable."

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

• USD/CAD remains elevated near mid-July levels despite a pause in the US Dollar’s weekly rally.
• The Loonie remains under pressure despite elevated Oil prices and heads for a second consecutive weekly loss.
• Traders look ahead to next week’s US PCE inflation, Nonfarm Payrolls and Canadian GDP data.

USD/CAD trades little changed on Friday as the US Dollar (USD) pulls back slightly after a strong rally this week. The pause in the Greenback and Treasury yields has offered little relief to the Canadian Dollar (CAD), leaving it on track for a third consecutive weekly decline. At the time of writing, the pair trades around 1.4141, near levels last seen in mid-July.

The Canadian Dollar is struggling to benefit from the softer US Dollar as the Federal Reserve (Fed) and the Bank of Canada (BoC) follow different policy paths. The Fed raised interest rates by 25 basis points (bps) last week to 3.75%-4.00% and signalled that another increase may be needed this year. The BoC, by contrast, has kept its policy rate at 2.25% and adopted a more cautious stance, noting little evidence that higher energy prices have spread into broader inflation.

The policy gap and prospects of additional Federal Reserve hikes have widened the front-end yield differential in favour of the US Dollar. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101 after reaching 101.40 on Thursday, its highest level in nearly two months.

The two-year US Treasury yield trades around 4.87%, slightly below Wednesday’s peak of 4.94%, its highest level since 2004. By comparison, Canada’s two-year government bond yield stands near 3.35%, leaving a yield gap of almost 150 basis points in favour of the US Dollar (USD).

The Loonie’s weakness comes despite support from elevated Oil prices, one of Canada’s main exports. Traders are instead focusing on the interest rate differential, the stronger US growth outlook, higher US yields and the risk that new US tariffs could weigh on Canadian activity. Bank of Canada Governor Tiff Macklem recently warned that tariffs could push Canadian fourth-quarter growth below 1%.

Next week, traders will focus on the US Personal Consumption Expenditures (PCE) inflation report, the ISM Manufacturing Purchasing Managers’ Index (PMI), the Nonfarm Payrolls (NFP) report and Canada’s July Gross Domestic Product (GDP) data.

(The story was corrected on September 25 at 13:55 GMT to say in the headline and first paragraph that the Canadian Dollar is on track for a third consecutive weekly decline, not a second.)