Forex News

• The Australian Dollar advances against the US Dollar after erasing part of its recent losses.
• Comments from the Reserve Bank of Australia strengthen expectations of another rate hike as early as May.
• The US Dollar remains fragile despite the risk of a slower adjustment in Federal Reserve policy.

AUD/USD rebounds on Friday and trades around 0.6995 at the time of writing, up 0.73% on the day. After being weighed down by a broad-based sell-off in global equities and risk-sensitive assets, the pair benefits from renewed demand for the Australian Dollar, supported by firmer expectations of monetary tightening in Australia.

The Australian Dollar had recently struggled amid heightened risk aversion, triggered by a correction in technology stocks linked to concerns over heavy investment in artificial intelligence. Often seen as a liquid barometer of global risk sentiment, the Australian currency was temporarily sidelined in favor of safe-haven assets.

Support returned following comments from Reserve Bank of Australia (RBA) Governor Michele Bullock. She stated that the board had raised the policy rate because the Australian economy is more capacity-constrained than previously assessed, requiring a more restrictive monetary stance. According to Bullock, the central bank must curb demand growth unless supply capacity expands more rapidly. These remarks revived expectations of another rate hike, with markets now assigning a higher chance to additional tightening as early as May.

Recent Australian macroeconomic data have also provided some support. Australia’s Trade Balance widened to AUD 3.373 billion in December, up from AUD 2.597 billion previously and slightly above market expectations. Exports rose 1.0% MoM, mainly driven by metals and mineral ores, while imports fell 0.8%, reflecting softer domestic demand. Meanwhile, S&P Global PMI surveys show a sharp acceleration in services sector activity, reinforcing the view of a still-resilient economy.

On the US side, the US Dollar remains under pressure. The US Dollar Index (DXY) slips 0.28% on Friday and trades around 97.68 at the time of press, after two consecutive days of gains. Recent US labor market data point to a cooling job market, fueling expectations of monetary easing from the Federal Reserve (Fed). Weekly Initial Jobless Claims increased to 231,000, while private job creation measured by the ADP survey came in well below expectations.

Even as some Fed officials urge caution and stress that inflation has yet to show clear signs of easing, markets continue to price in rate cuts later this year. This backdrop limits the US Dollar’s rebound potential and allows AUD/USD to hold in positive territory, as investors await fresh macroeconomic catalysts, including upcoming US consumer sentiment data.

Commerzbank’s Barbara Lambrecht argues Copper faces near‑term pressure from rising exchange inventories and broader metals volatility, but maintains a constructive long‑term view. Chinese grid‑expansion capex is up sharply and industry forecasts point to slower supply growth and calls for higher state reserves, underpinning expectations of sustained demand support despite current headwinds.

Inventory pressure versus structural demand

"Base metal prices are not only facing headwinds from the precious metals markets, but the fundamentals have also been rather negative recently. This is particularly true for copper."

"But regardless of the current headwinds, we see two factors that provide sustained support: On the positive side, China's energy companies responsible for grid expansion, which are probably the largest consumers of copper, reported that they had increased their capital expenditure in January by 35% compared to the previous year."

"This indicates that grid expansion is indeed being pushed ahead significantly, as announced."

"Second, at its annual briefing, the China Nonferrous Metals Industry Association forecast production growth of only 5% in the current year, down from 10% in the previous year. It also called once again for the government to build up more copper reserves."

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

Lee Hardman from MUFG highlights that the Pound has sold off sharply, with EUR/GBP breaking above its 200-day moving average as markets reprice a more dovish Bank of England path. A closer-than-expected MPC vote, softer guidance, and rising UK political risks around Prime Minister Keir Starmer and potential leadership challenges are seen adding downside pressure to Sterling.

BoE repricing and UK political stress

"The pound has weakened sharply over the last couple of trading days."

"After closing below support from the 200-day moving average at the start of this week for the first time since April of last year and hitting a low of 0.8613, EUR/GBP jumped to a high yesterday of 0.8721."

"The abrupt reversal of the pound strengthening trend that had been in place since late last year was triggered both by the dovish repricing of BoE rate cut expectations and the return of political risk in the UK."

"We are currently forecasting two more cuts this year but can’t rule out a third later this year."

"The UK rate market has moved to price back in more rate cuts from the BoE after yesterday’s MPC meeting."

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

Bank of England (BoE) Governor Huw Pill said that there’s a risk that they will draw too much comfort from the dip in inflation that will come in April. He added that they should not overinterpret changes to growth outlook, speaking to businesses on Friday.

Key takeaways:

There's a risk that we draw too much comfort from the dip in inflation that will come in April.

Labor market does appear to have eased significantly, perhaps more than activity data would have predicted.

Should not overinterpret changes to growth outlook in February BOE forecasts.

Latest pay intentions data is good evidence that the disinflation process is intact but not complete.

Latest DMP data on pay and pricing plans are not at entirely comfortable levels.”

Brown Brothers Harriman (BBH) reports that the USD has pared back some gains, particularly against commodity-sensitive currencies. The report highlights a surge in AI capital expenditures, which is expected to drive commodities, especially precious and industrial metals.

AI spending boosts commodity currencies

"The commodity complex is rallying underpinned by a surge in AI capital expenditures plans. Amazon, Google, Microsoft, and Meta have forecast to spend a total of about $660bn in 2026 (2.1% of US GDP) for new data centers and equipment. That’s 60% higher than in 2025 and 165% higher than in 2024."

"Commodities, particularly precious and industrial metals, will keep benefiting from the ongoing AI spending boom. Every new server and power system requires large amounts of silver, gold, platinum, palladium, and copper, for high performance chips, wiring, and energy infrastructure."

"AUD, CLP, ZAR, BRL, MXN, and PEN all stand to outperform."

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

TD Securities anticipates a landslide victory for the LDP in Japan's upcoming Lower House election, which is expected to restore a stable political environment. The report warns that investors should be cautious of potential FX intervention if USD/JPY breaks above 160.

Japanese election outlook

"We expect the LDP to win by a landslide this weekend, achieving an absolute majority in the Lower House which ushers back a stable political environment."

"Investors will be on the lookout for MoF's FX intervention if USDJPY breaks >160 as MoF may take advantage of thinner liquidity during Japan holiday on the 11th Feb."

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