Forex News
- AUD/JPY drifts lower to near 102.70 in Thursday’s early European session.
- The cross keeps the bullish vibe above the key 100-day EMA, with steady RSI momentum.
- The upside barrier to watch is 104.43, while the lower band at 100.78 acts as a contention level.
The AUD/JPY cross declines to around 102.70 during the early European session on Thursday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) amid firming expectations for an imminent rate hike by the Bank of Japan (BoJ) this week.
The BoJ is expected to raise interest rates to 0.75% from 0.5% at a two-day policy meeting ending on Friday. This move would be the first rate hike since January and bring the benchmark rate to a three-decade high. Additionally, recent reports stated that the Japanese central bank would likely maintain a pledge to keep raising interest rates but emphasized that the pace will depend on how the economy reacts to each hike.
Technical Analysis:
In the daily chart, AUD/JPY trades at 102.70. The pair holds well above the 100-day EMA at 99.44, keeping the broader uptrend intact. The average slopes higher, reinforcing a buy-the-dip bias. RSI at 54.91 is neutral to mildly positive, reflecting moderated but steady momentum. Price sits just above the middle Bollinger band at 102.61, and the envelopes tilt higher, pointing to trend continuity.
Holding daily closes above the middle band would preserve upside pressure toward the upper Bollinger barrier at 104.43. A break beneath that pivot could expose the lower band at 100.78, with the 100-day EMA at 99.44 providing deeper support. Band expansion remains gradual, so a decisive breakout would require a pickup in volatility.
(The technical analysis of this story was written with the help of an AI tool)
- EUR/JPY holds steady as the Japanese Yen stays under pressure amid concerns over Japan’s weakening fiscal outlook.
- Japan’s PM Sanae Takaichi stressed proactive fiscal policy over excessive tightening to strengthen Japan’s capabilities.
- The Euro gained against major peers as easing Eurozone inflation reduced prospects of further ECB easing.
EUR/JPY holds ground after registering 0.51% gains in the previous session, trading around 182.90 during the Asian hours on Thursday. The currency cross holds steady as the Japanese Yen (JPY) remains under pressure amid worries about Japan’s weakening fiscal outlook.
Japanese Prime Minister Sanae Takaichi on Wednesday underlined the need for proactive fiscal policy to strengthen Japan's capabilities, rather than excessive fiscal tightening. Takaichi said, “We will achieve sustainable fiscal policy, social welfare system by reflating the economy, improving corporate profits, increasing household income via wage gains that then boost tax revenues.”
The JPY could find support as the Bank of Japan (BoJ) is widely expected to raise its policy rate by 25 basis points to 0.75% on Friday, with elevated food prices keeping inflation above the central bank’s 2% target. Markets will closely watch Governor Kazuo Ueda’s post-meeting comments for clues on next year’s policy path, amid speculation that rates could rise to 1% by July.
The Euro (EUR) advanced against its major peers as easing inflation in the Eurozone (EZ) reduced the likelihood of further monetary easing by the European Central Bank (ECB). ECB officials have indicated that additional rate cuts may not be necessary in 2026.
Attention now turns to the ECB’s December policy meeting, which is widely expected to be a non-event, with President Christine Lagarde likely to keep rates unchanged at this meeting and throughout next year.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- USD struggles to attract any follow-through buying amid dovish Fed expectations.
- Traders also seem reluctant to place aggressive bets ahead of the US CPI report.
- The recent breakdown below the 200-day SMA warrants some caution for bulls.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to build on the previous day's modest recovery gains and oscillates in a narrow band during the Asian session on Thursday. The index is currently placed just below mid-98.00s, nearly unchanged for the day, as traders opt to wait for the US consumer inflation figures before placing fresh bets.
The crucial US Consumer Price Index (CPI) is due for release later during the North American session and will be scrutinized for cues about the Federal Reserve's (Fed) future policy path. This, in turn, will play a key role in determining the next leg of a directional move for the buck. Heading into the key data risk, dovish Fed expectations keep the USD bulls on the defensive and act as a headwind for the index.
Despite the Fed's cautious outlook, traders have been pricing in the possibility of two more interest rate cuts in 2026 amid visible signs of a softening US labor market. Adding to this, speculations that the new Fed chair will be dovish and slash interest rates further amid political pressure. In fact, US President Donald Trump said on Wednesday that the next Fed chief will be someone who believes in lower interest rates by a lot.
However, Federal Reserve Governor Christopher Waller – one of five finalists to potentially succeed Jerome Powell – said that he will absolutely emphasize the importance of central bank independence to President Trump. This, in turn, offers some support to the USD. Nevertheless, the broader fundamental backdrop seems tilted in favor of bears and suggests that the path of least resistance for the USD is to the downside.
Even from a technical perspective, the recent breakdown and the overnight failure near the very important 200-day Simple Moving Average (SMA) validate the near-term negative outlook for the Greenback. Hence, any subsequent move up might still be seen as a selling opportunity, warranting some caution before positioning for an extension of the USD's recovery from its lowest level since early October.
Economic Indicator
Consumer Price Index (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Thu Dec 18, 2025 13:30
Frequency: Monthly
Consensus: 3.1%
Previous: 3%
Source: US Bureau of Labor Statistics
The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
Speaking in a national address early Thursday, US President Donald Trump said the next chairman of the Federal Reserve (Fed) will be someone who believes in lower interest rates "by a lot."
Trump further noted that he will soon announce a successor to current Fed Chair Jerome Powell.
Market reaction
The US Dollar Index (DXY) is struggling to recover from its overnight drop, trading flat at around 98.40, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- WTI price loses momentum to near $56.00 in Thursday’s Asian session.
- A possible peace agreement in Ukraine undermines the WTI price, but the US blockade of Venezuela might cap its downside.
- US crude oil stockpiles fell by 1.274 million barrels last week, EIA said.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $56.00 during the Asian trading hours on Thursday. The WTI price edges lower amid optimism over a peace agreement between Russia and Ukraine.
A possible peace agreement in Ukraine would bring Russian crude back to a well-supplied market and weigh on the black gold. “Ukraine’s attacks on oil infrastructure and U.S. sanctions on Russian oil companies would likely be lifted relatively quickly in the event of an agreement,” said Jorge Leon, Rystad Energy’s head of geopolitical analysis.
On the other hand, the downside for the WTI might be limited after US President Donald Trump said the United States (US) will block sanctioned tankers from entering and leaving Venezuela. Venezuela’s government on Wednesday ordered its Navy to escort ships carrying petroleum products from port, escalating the risk of a confrontation with Trump ordered a “blockade” aimed at the country’s oil industry.
Additionally, a larger-than-expected crude oil inventory draw might contribute to the WTI’s upside. Data released by the Energy Information Administration (EIA) on Wednesday showed that crude oil stockpiles in the US for the week ending December 12 declined by 1.274 million barrels compared to a fall of 1.812 million barrels in the previous week. The market consensus was for a 1.1 million barrel decrease in the report period.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- USD/CAD maintains its position as traders adopt caution ahead of the delayed US Consumer Price Index report.
- Fed’s Waller said that with inflation still elevated, policymakers can afford to be patient and delay policy easing.
- The commodity-linked CAD faces headwinds as Oil prices decline, despite escalating geopolitical tensions.
USD/CAD holds position after registering modest gains in the previous session, trading around 1.3790 during the Asian hours on Thursday. The US Dollar (USD) holds ground from market caution ahead of the release of the delayed US Consumer Price Index (CPI) report due later in the day, which is expected to provide further insight into how price pressures are evolving.
Federal Reserve (Fed) Governor Christopher Waller, who is under consideration to become chair of the central bank, reiterated his dovish stance on interest rates during a CNBC forum. “Because inflation is still elevated, we can take our time - there’s no rush to get down. We can steadily bring the policy rate down toward neutral,” Waller said.
The CME FedWatch tool suggests that Fed funds futures are pricing an implied 75.6% chance of a hold in rates at the US central bank's next meeting in January, up from nearly 74% a week ago.
The USD/CAD pair may gain ground as the commodity-linked Canadian Dollar (CAD) faces challenges amid declining Oil prices. West Texas Intermediate (WTI) trades lower near $56.00 per barrel at the time of writing. However, the downside of the Oil prices could be restrained amid rising geopolitical tensions.
The United States (US) has ordered a complete halt to maritime traffic involving sanctioned Oil tankers traveling to and from Venezuela. At the same time, Washington is pushing for stricter sanctions on Russia’s energy sector to support peace negotiations over Ukraine, fueling worries about possible disruptions to global supply.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- Silver drifts lower on Thursday and erodes a part of Wednesday's gains to the all-time peak.
- The overbought RSI on the daily chart is seen as a key factor that prompts profit-taking.
- The bullish technical setup backs the case for the emergence of dip-buying at lower levels.
Silver (XAG/USD) attracts some sellers during the Asian session on Thursday and currently trades around the $65.75-$65.70 region, down over 1% for the day. The white metal, however, remains well within striking distance of the all-time peak touched the previous day, and the broader technical setup still seems tilted firmly in favor of bullish traders.
The overnight breakout through a horizontal barrier near the $64.00 mark was seen as a key trigger for the XAG/USD bulls and validates the near-term positive outlook. The said handle now coincides with the 100-hour Simple Moving Average (SMA) pivotal support, which, in turn, should act as a strong base for the commodity and as a key pivotal point for short-term traders.
The Relative Strength Index (RSI) prints 59.95, neutral-to-bullish on the 1-hour chart, though it is flashing overbought conditions on the daily chart. The Moving Average Convergence Divergence (MACD) histogram slipped below zero, suggesting the MACD line crossed beneath the Signal line, and momentum cooled. Nevertheless, the broader setup stays mildly constructive
Moreover, the upward slope of the 100-hour SMA suggests that any corrective slide is more likely to attract dip-buying. Holding above the rising SMA would preserve the upside tone for the XAG/USD, while a decisive break below that support would open a deeper pullback. A MACD return to positive territory, and an RSI hold above 50 would bolster the bullish outlook.
(The technical analysis of this story was written with the help of an AI tool)
Silver 1-hour chart
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 7.0583 compared to the previous day's fix of 7.0573.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- GBP/USD lacks any firm intraday direction as traders opt to wait for the BoE policy decision.
- A soft UK CPI print and a rise in the Unemployment Rate back the case for a rate cut.
- Dovish Fed expectations keep a lid on the attempted USD recovery, supporting spot prices.
The GBP/USD pair struggles to capitalize on the overnight bounce from the 1.3310 area, or a one-week low, and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.3370 region, down less than 0.10% for the day, as traders opt to wait on the sidelines ahead of the key central bank event risk and US consumer inflation data.
The Bank of England (BoE) is scheduled to announce its policy decision later today and is widely expected to lower interest rates by 25 basis points (bps), following a pause in November. The bets were reaffirmed by softer UK consumer inflation figures on Tuesday, which continue to undermine the British Pound (GBP) and turn out to be a key factor acting as a headwind for the GBP/USD pair.
The UK Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) rose 3.2% over the year in November, marking a notable slowdown from 3.6% in October and missing expectations for a reading of 3.5%. Moreover, the gauge excluding volatile food and energy items – core CPI – climbed 3.2% YoY last month, compared to consensus estimates and October's 3.4% print.
This comes on top of a rise in Britain’s unemployment rate to its highest since the start of 2021 and provides the BoE headroom to ease monetary policy further. The GBP bears, however, seem reluctant to place aggressive bets and opt to wait for more cues about the BoE's policy path before placing fresh bets. Apart from this, the lack of follow-through US Dollar (USD) buying supports the GBP/USD pair.
Despite the US Federal Reserve's (Fed) cautious outlook, traders have been pricing in the possibility of two more rate cuts in 2026 amid visible signs of a softening US labor market. Moreover, expectations for a dovish replacement of Fed Chair fail to assist the USD in capitalizing on the overnight recovery. This, in turn, warrants caution before positioning for deeper losses for the GBP/USD pair.
Economic Indicator
BoE Interest Rate Decision
The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.
Read more.Next release: Thu Dec 18, 2025 12:00
Frequency: Irregular
Consensus: 3.75%
Previous: 4%
Source: Bank of England
- NZD/USD softens to around 0.5770 in Thursday’s early Asian session.
- New Zealand’s economy grew by 1.1% QoQ in Q3, stronger than expected.
- Traders raise their bets of a January Fed rate cut after the US NFP report for November.
The NZD/USD pair remains weak near 0.5770 during the early Asian trading hours on Thursday. The New Zealand Dollar (NZD) edges lower against the Greenback despite a stronger-than-expected New Zealand Gross Domestic Product (GDP) report. Markets might turn cautious ahead of the US key inflation data, which is due later on Thursday.
Data released by Statistics New Zealand on Thursday showed that New Zealand’s economy grew by 1.1% QoQ in the third quarter (Q3), compared with a 1.0% contraction (revised from -0.9%) in Q2. This reading came in stronger than the expectations of 0.9%. The third-quarter GDP expanded by 1.3% YoY, versus a fall of 1.1% (revised from -0.6%) in Q2, in line with the market consensus. Nonetheless, the upbeat GDP report fails to boost the New Zealand Dollar (NZD).
The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by 325 basis points (bps) since August last year to 2.25% as it seeks to boost the economy. The central bank stated in November that its central case was that the benchmark would be on hold through 2026, but traders are wagering on a rate hike as soon as the third quarter.
The US employment report for November showed that the US labor market remains relatively resilient but shows signs of slowing. The report reinforces bets of further rate cuts by the US Federal Reserve (Fed) in 2026. Futures on the federal funds rate are now pricing in a 31% chance the Fed will reduce rates next month immediately after the NFP report, compared with 22% just before, according to LSEG estimates. The prospect of a US interest rate cut next year could weigh on the US Dollar (USD) and act as a tailwind for the pair.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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