Forex News
ING’s Frantisek Taborsky expects the Polish central bank to keep rates at 3.75% as Middle East tensions and higher Oil prices limit easing scope. Markets now price around 80bp of tightening, similar to the Czech Republic, but the NBP is less hawkish. ING sees scope for repricing and a partial dovish correction that could lift EUR/PLN back above 4.330 soon.
NBP stance may trigger EUR/PLN rebound
"We expect the Polish central bank to keep rates unchanged at 3.75% today, as renewed tensions in the Middle East and higher oil prices leave little scope for easing. National Bank of Poland Governor Adam Glapiński sounded dovish in July and was open to post-summer rate cuts."
"However, subsequent developments suggest his inflation outlook was too optimistic, with inflation likely to rebound towards the upper end of the tolerance band later this year."
"The Polish market shifted hawkish in August alongside global markets and now prices around 80bp of tightening, similar to the Czech Republic. However, the Czech National Bank remains notably more hawkish than the NBP."
"Unless the NBP surprises today or tomorrow, some repricing is likely. Oil and gas prices will continue to support hawkish bets, but a partial dovish correction could lift EUR/PLN back above 4.330 soon."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- NZDUSD extends decline below the 200-day SMA to test four-week lows at 0.5835.
- Risk aversion is hurting the Kiwi, as the Middle East conflict widens and Oil prices rally.
- The technical picture shows a bearish trend with price action nearing the neckline of a bearish H&S pattern.
The New Zealand Dollar trades lower against the US Dollar (USD) for the third consecutive day on Wednesday, extending losses below 0.5850 to test four-week lows at the 0.5835 area. A dismal market mood as the Middle East conflict widens and higher Oil prices rally is hurting confidence in the risk-sensitive Kiwi, while a soft US Dollar keeps the pair from depreciating further.
Investors’ appetite for risk plummeted on Wednesday as reports of a new round of reciprocal attacks between the US and Iran push back hopes of a swift end to the conflict. Beyond that, Tehran-backed Houthi militias entered the stage on Tuesday, with attacks on Saudi Arabian Oilfields, further entangling a conflict which threatens to slide into a regional war.
Oil prices undermine support for the NZD
Oil prices have rallied further in this context, with Brent Crude reaching session highs above $99.00, drawing closer to the feared $100 level, and increasing the exposure of New Zealand's oil-importing economy.
Earlier on Wednesday, data released by the National Bureau of Statistics of China revealed that consumer inflation grew 0.4% in August, after a 0.1% contraction in July, beating expectations of a 0.3% increase. Year-over-year (Y-o-Y), the Consumer Price Index (CPI) accelerated to 0.8% from 0.5% in the previous month. These figures eased concerns about a patchy recovery in China’s domestic demand and provided a moderate impulse to the NZD during the Asian and early European sessions.
US Dollar rallies, on the other hand, remain subdued so far, with investors awaiting the release of US Consumer Price Index data, due on Friday, to confirm expectations of a Federal Reserve (Fed) rate hike next week. Brown Brothers Harriman’s Elias Haddad, however, argues that “even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs,” as tightening by other major central banks “limits policy divergence, with the ECB widely expected to deliver a 25bps hike tomorrow,” reducing the scope for further sustained Dollar appreciation.
Technical Analysis: NZD/USD approaches the neckline of a dovish H&S formation
NZD/USD trades below its 200-day simple moving average (SMA), keeping a bearish near-term bias in place as price action approaches the neckline of a bearish Head & Shoulders (H&S) formation, in the 0.5800 area. Momentum indicators in the daily chart endorse the bearish view, as the Relative Strength Index (RSI) dips below 50 and the Moving Average Convergence Divergence (MACD) steadies at negative levels.
A confirmation below 0.5800 would increase pressure towards the late July lows, near 0.5765 and the July 13 low, at 0.5745. The H&S's measured target is below the June 26 low at 0.5626. Bulls, on the other hand, should push the pair above the mentioned 200-day SMA, in the 0.5855 area, to shift the focus towards Friday's high, near 0.5900, and the late August highs, in the 0.5990 area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
BNY Mellon’s Geoff Yu highlights Brent crude breaking above $100/barrel, with institutional investors rebuilding exposure to energy stocks while retail investors take profits. Yu notes that flows into developed market energy names are stronger than into emerging markets, but overall conviction remains low. Supply factors and central bank responses are seen as dominant drivers, keeping investors cautious on Oil-linked assets.
Brent rally meets wary positioning
"Supply fears are intensifying. Low-level kinetic activity in the Gulf continued overnight, but markets are increasingly pricing in a prolonged period of supply stress as Brent moves decisively above $100/barrel."
"Brent crude hit $100/barrel overnight for the first time since late July, and this is being felt across energy-linked assets globally. Institutional investors are rebuilding exposure after taking profits earlier in the summer, supported by the earnings lift and energy’s role as a real asset hedge. Flows are continuing to perform well despite a hawkish shift by the Fed, indicating that pricing is now moving independently of financial conditions."
"Breaking the flows down into developed and emerging market energy names, we see two key differences compared with the flows in Q1. Firstly, developed market flow scores are dominant during this phase, suggesting that investors view these markets as better-positioned to capture any earnings lift. Secondly, the combined flow magnitudes remain less consistent than in the escalation period."
"This shows that markets are responding tactically to the price action in oil but not committing to any material re-rating yet. The inferences are that supply factors remain dominant and there is a risk that the significant restraint materializing through global supply channels and central bank responses warrants a more cautious approach. In another sign of light conviction, our data show that after a period of alignment retail investors have been liquidating their energy holdings in recent sessions, diverging from institutional flows."
"Iraq is seeking a significant increase in its OPEC+ production quota as the group reviews member capacity ahead of setting future targets. Baghdad wants its baseline to be raised to 6 million barrels/day, well above its current September-October ceiling of 4.431 million and the IEA’s estimated sustainable capacity of 4.9 million."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The British Pound trades lower against the Japanese Yen amid the likelihood of a BoJ 50bps interest rate hike.
- Investors will pay close attention to BoJ’s monetary policy statement and Governor Kazuo Ueda’s remarks.
- Next week, the British Pound will be influenced by the BoE interest rate decision.
The British Pound (GBP) trades 0.3% lower at around 207.80 against the Japanese Yen (JPY) during the European trading session on Wednesday. The cross is under pressure as the Japanese Yen (JPY) outperforms its peers, with market participants also pricing in expectations of a Bank of Japan (BoJ) 50 basis points (bps) hike at the policy meeting next week.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.26% | -0.29% | -1.67% | -0.46% | -0.33% | 0.56% | -0.13% | |
| EUR | 0.26% | -0.03% | -1.39% | -0.18% | -0.04% | 0.85% | 0.13% | |
| GBP | 0.29% | 0.03% | -1.48% | -0.16% | -0.02% | 0.86% | 0.17% | |
| JPY | 1.67% | 1.39% | 1.48% | 1.32% | 1.44% | 2.32% | 1.62% | |
| CAD | 0.46% | 0.18% | 0.16% | -1.32% | 0.18% | 1.02% | 0.33% | |
| AUD | 0.33% | 0.04% | 0.02% | -1.44% | -0.18% | 0.88% | 0.18% | |
| NZD | -0.56% | -0.85% | -0.86% | -2.32% | -1.02% | -0.88% | -0.69% | |
| CHF | 0.13% | -0.13% | -0.17% | -1.62% | -0.33% | -0.18% | 0.69% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
A note from Rabobank states that market chatter around the prospect that the BoJ “might even think about a 50bps hike” has also intensified.
BoJ’s bigger interest rate hike expectations emerged after board member Hajime Takata said last week that the central bank needs “a different response from conventional semi-annual rate hike pace”. “Need a more nimble approach with rate hikes,” Takata added.
Japan rate expectations build as markets eye BoJ shift
With financial markets completely pricing in a BoJ interest rate hike next week, the major highlight of the meeting is expected to be monetary policy guidance.
Analysts at HSBC point out that “overnight index swaps imply around 75bp of cumulative hikes by April 2027 and even assign meaningful odds of a hike at the 18 September meeting, which stands out as unusual.” HSBC argues that these repricings “suggest investors anticipate a change in how the BoJ responds to inflation and growth risks.”
Meanwhile, the British Pound (GBP) is expected to trade sideways amid a quiet United Kingdom (UK) economic calendar. Next week, the Bank of England (BoE) is scheduled to announce its interest rate decision.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
- The Japanese Yen strengthens against the US Dollar, pushing USD/JPY down nearly 0.4% on Wednesday.
- Markets expect a 25-basis-point interest rate hike in Japan in September, while policymakers leave the door open to more aggressive tightening.
- Investors now await US inflation data to refine expectations for the Federal Reserve’s next policy decision.
USD/JPY declines 0.39% on Wednesday and trades around 153.40 at the time of writing. The Japanese Yen (JPY) benefits from renewed demand as investors increase their bets on further monetary tightening by the Bank of Japan (BoJ).
The BoJ is expected to raise its policy rate by 25 basis points (bps) at its September meeting, taking it from 1% to 1.25%. Such a move would bring Japanese interest rates to their highest level in nearly 31 years and would follow the rate hike delivered in June.
Expectations of further monetary tightening are supported by inflationary risks stemming from higher Oil prices and the weakness of the Japanese Yen. BoJ board member Hajime Takata reinforced these expectations last week by suggesting that the central bank could adopt a more aggressive approach than previously anticipated. Takata indicated that a 25-basis-point increase was not necessarily set in stone and that consecutive rate hikes also remained possible.
In the United States (US), attention turns to upcoming inflation data. The Producer Price Index (PPI) and Consumer Price Index (CPI) are expected to provide fresh clues about the Federal Reserve’s (Fed) monetary policy path ahead of its September meeting.
According to the CME FedWatch Tool, markets currently assign around a 62% chance to a Fed interest rate hike at its September meeting. Upcoming inflation data could therefore play a decisive role in shaping interest rate expectations on both sides of the Pacific and, consequently, the next directional move in USD/JPY.
USD/JPY technical analysis
In the one-hour chart, USD/JPY trades at 153.37, holding in a bearish near-term bias as it remains well below the 100-period simple moving average (SMA) at 154.92 and the 200-period SMA at 157.26. The pair is consolidating after recent losses, with price capped by these descending longer-term averages, while the Relative Strength Index (14) near 42 hints that downside pressure persists but is not yet oversold.
On the topside, initial resistance is located at 154.40, ahead of the 100-period SMA at 154.92 and a higher horizontal barrier at 155.29, with the 200-period SMA at 157.26 reinforcing the broader bearish structure above. On the downside, immediate support is seen at 152.89, with a deeper floor at 152.27; a clear break below this zone would open the way to an extension of the downtrend, while recovery attempts are likely to struggle as long as the pair trades under the 100-period SMA.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Commerzbank’s Antje Praefcke argues that despite currently low Swedish inflation readings, the Riksbank is likely to maintain its guidance that the policy rate could rise by year-end. She points to temporary tax measures and elevated energy prices as factors that could push inflation higher ahead, and expects elections to have limited near-term impact on the Swedish Krona.
Inflation risks keep hike chance alive
"Sweden’s August inflation data came as no surprise to the Riksbank at the start of the week. Following deviations from its forecasts in June and July, inflation in August was in line with its expectations (headline rate +0.3% yoy, core rate +0.7%); the market had anticipated marginally higher figures, but overall the rates remain low."
"The halving of the value-added tax on food is one of several temporary fiscal measures that will initially curb inflation and then allow it to rise again once the measure expires."
"However, energy prices - which have been elevated for several months now (with little prospect of a fundamental improvement in the situation at present, on the contrary) - will, on the one hand, cause inflation to rise directly and, on the other hand, indirectly drive up the prices of imported goods and other commodities."
"The Riksbank therefore expects inflation rates to rise, particularly starting in the spring of next year, which is why despite seemingly low rates at present it is likely to stick to its assessment that the policy rate could rise by the end of the year in order to address these price risks in a timely manner."
"A delay in the rate hike is conceivable, but unlikely given the conflict in the Middle East and high energy prices. However, only an unexpected departure from its restrictive stance, which we do not expect, is likely to put the krona under stronger depreciation pressure."
"Sunday’s parliamentary elections, on the other hand, are likely to have little impact on the krona. What will be important for the Riksbank is how fiscal policy will be shaped in the coming years, though this will not become clear for several months. In the run-up to the elections, the government was spendthrift, which in turn should be reflected in favorable growth prospects - another reason for the Riksbank to maintain, in two weeks, the possibility of an interest rate hike before the end of the year."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Nomura’s analysts see Norges Bank delivering another rate hike in November as inflation remains sticky, before a 25 bp cut next year and further reductions beyond 2027 towards 3.50%. They note Norway’s policy rate has been unusually far above the European Central Bank's (ECB), driven by Norwegian Krone (NOK) weakness, resilient growth and higher neutral rate estimates.
Norwegian rates to normalise from highs
"Norges Bank raised its policy rate in May, partly prompted by price pressures from the Iran war, but in our view the dominant factor was persistent stickiness in underlying inflation. We expect another rate rise in November, as inflation remains sticky. We then expect a 25bp rate cut next year and believe further rate reductions beyond that are likely as we forecast inflation to slow gradually."
"After the ECB hike to 2.50% that we expect in September, and Norges Bank’s likely second hike this year, followed by a cut that we expect in 2027, there would still be a 1.75pp difference between policy rates. However, we think further cuts from Norges Bank beyond 2027 are likely, to a policy rate of around 3.50%. This would therefore lead to a policy rate differential of around 1.0pp, much closer to the typical difference in policy rates over the past decade."
"Key factors that likely contributed to Norges Bank needing policy rates to be higher for longer than the ECB since 2023 are the weaker NOK (though NOK has strengthened this year), which contributed to upward inflationary pressure in Norway, and the resilient Norwegian economy with low unemployment and high recent wage growth (with the economy boosted by the oil and gas sectors)."
"In Norway, the faster pass-through of monetary policy through the cash-flow channel may add to the reasoning (alongside the country’s lower exposure to energy shocks) why inflation in Norway peaked at a lower rate in 2022 despite Norges Bank increasing its policy rate by a smaller amount between 2022 and 2023 than the ECB. However, inflation in Norway has remained sticky since then, despite a restrictive policy rate. "
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The US Dollar Index bounces from 98.60 lows but remains capped below 99.00, more than 1% below last week's highs.
- Dollar debasement trade, carry trade unwinding and hopes of global monetary tightening are hurting the USD.
- BBH sees the USD unlikely to rally higher even if US CPI confirms a Fed rate hike next week.
The US Dollar (USD) is failing to capitalise on the risk-averse market this week, as tensions in the Gulf escalate, threatening to widen into a full regional war. The US Dollar Index (DXY) has trimmed some losses but remains relatively close to four-month lows below 99.00 after a nearly 1% decline from last week’s highs. Why did the US Dollar’s safe-haven status stop working?
Investors highlight a combination of reasons behind the recent Greenback's weakness, with USD debasement trade accelerating after the US Treasury announced its plan to buy back long-term securities, but also with other reasons such as the Japanese Yen (JPY) carry trade unwinding dynamics, amid hopes of a steeper Bank of Japan (BoJ) tightening pace, and rising bets of higher interest rates by the rest of the major central banks contributing to it.
Dollar debasement debate weighs on sentiment
Analysts at Rabobank observe that the USD failed to react despite the positive surprise on the Nonfarm Payrolls (NFP) report witnessed last week, boosting hopes of a Federal Reserve (Fed) interest rate hike in September. The “USD’s dithery tone in recent sessions adds weight to the view that there has been a change in sentiment in the FX market," said the Rabobank team in a note.
They argue that the “Dollar debasement debate which was triggered by US Treasury Secretary Bessent’s bond intervention announcement on August 19 appears to have undermined confidence in the greenback,” helping to explain why the currency has struggled to capitalise on otherwise supportive developments.
In the same line, MUFG notes that “the bond buyback expansion was announced on 19th August and since then the dollar index remains around 1% lower despite the short-end of the US yield curve moving to price in more Fed rate hikes.” They see this divergence as evidence that policy developments around the US bond market are weighing on the currency, even as markets factor in a more hawkish Fed path.
ING: Fragile USD/JPY keeps DXY on the back foot
Analysts at ING argue that a “very fragile USD/JPY is probably also contributing to the dollar malaise,” noting that global macro hedge funds are positioning “for a downside break of 150 over the coming months on expectations that Japanese policymakers will deliver on their side of some grand bargain with Washington.”
Against this backdrop, ING concedes that “we don't fully understand why the Dollar is not reacting to higher energy prices” but adds that they “do not see a strong case for DXY to immediately break support at 98.55/65.” However, they caution that “if it were to break, we suspect USD/JPY would be the driver, and a quick drop in DXY to 98.00 could be seen.”
Brown Brothers Harriman’s Elias Haddad sees the US Dollar weighed as markets focus on the upcoming US August Consumer Price Index (CPI) and the Federal Reserve’s (Fed) September 16 monetary Policy meeting. Haddad, however, warns that “even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs,” as “tightening by other major central banks limits policy divergence, with the ECB widely expected to deliver a 25bps hike tomorrow,” reducing the scope for further sustained Dollar appreciation.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- The Indian Rupee declines further against the US Dollar amid surging oil prices.
- A significant fall in the INR has increased the odds of RBI intervention.
- Investors await the US CPI data for fresh cues regarding the interest rate outlook.
The Indian Rupee (INR) extends its decline against the US Dollar (USD) on Wednesday after a sharp correction the previous day. The USD/INR pair jumps marginally above 95.11 as surging energy prices have battered the Indian currency significantly.
As of writing, the MCX Crude Oil contract expiring on September 21 trades higher by over 2.5%, slightly above Rs. 8,950, the highest level seen since May 22.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.
Escalating US-Iran attacks boost oil prices
Rising tit-for-tat attacks between the US and Iran in the past few weeks have prompted fears of prolonged energy supply disruption again.
Earlier in the day, Iran's Islamic Revolutionary Guard Corps (IRGC) launched ballistic missile strikes targeting the Al Azraq air base in Jordan, which shelters US military personnel and aircraft, in response to US Central Command (CENTCOM) consistently bombing Iranian tankers in the Gulf of Oman, Al Jazeera reported.
Meanwhile, the data from Kpler shows that the number of commodity vessels sailing through the Strait of Hormuz totalled seven on September 7, compared with eight on the previous day, Reuters reported. This is a significant decline from an average of 130-140 ships transiting through Hormuz before the Middle East war started.
Falling INR prompts fears of RBI intervention
A significant decline in the Indian currency this week has prompted fears of the Reserve Bank of India’s (RBI) stealth intervention through spot and Non-Deliverable Forward (NDF) markets.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.08% | -0.41% | -0.08% | -0.17% | 0.31% | -0.13% | |
| EUR | 0.08% | 0.00% | -0.34% | -0.01% | -0.11% | 0.47% | -0.04% | |
| GBP | 0.08% | -0.01% | -0.33% | 0.02% | -0.09% | 0.43% | -0.04% | |
| JPY | 0.41% | 0.34% | 0.33% | 0.34% | 0.24% | 0.78% | 0.30% | |
| CAD | 0.08% | 0.01% | -0.02% | -0.34% | -0.10% | 0.45% | -0.04% | |
| AUD | 0.17% | 0.11% | 0.09% | -0.24% | 0.10% | 0.56% | 0.07% | |
| INR | -0.31% | -0.47% | -0.43% | -0.78% | -0.45% | -0.56% | -0.50% | |
| CHF | 0.13% | 0.04% | 0.04% | -0.30% | 0.04% | -0.07% | 0.50% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
According to a Reuters report, while the Indian central bank was present in the market on Tuesday, traders said the intervention was not enough to prevent the Indian Rupee from weakening. Early Wednesday, the Indian central bank was also expected to have sold US Dollars to arrest the Indian Rupee slide.
US Inflation will be key trigger this week
This week, the major trigger for the USD/INR pair will be the US Consumer Price Index (CPI) data for August, which will be released on Friday. The inflation data is expected to have a significant influence on the US interest rate outlook.
According to TD Securities, upcoming inflation data should be “subdued enough to keep the Fed on hold,” though they stress that “the PCE translation will be key.” The bank estimates that, if their forecast is realized, “core PCE would likely be a modest 0.18% m/m, with market-based an even more subdued 0.13%.” They argue that such an outcome “would be a welcome number for the more centrist members of the FOMC like Waller and Williams, and in our view, would be enough to keep the Fed on hold in September.”
Technical Analysis: USD/INR recovers to near 20-day EMA
In the daily chart, USD/INR trades at 95.11. The pair has recovered strongly to near the 20-day exponential moving average (EMA) at 95.13, suggesting strong demand at lower levels.
The Relative Strength Index (14) recovers quickly into the 40.00-60.00 zone after staying below 40.00 for a few trading days, backing the view of strong buying interest at lower levels.
On the topside, initial resistance is located at the 20-day EMA around 95.13; a daily close above this level would be needed to ease immediate selling pressure and open the way for a more sustained rebound toward 95.50. Looking down, the June low at 94.15 will remain the key support area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
