Forex News
- Dow Jones futures rose as optimism over a US-Iran deal eased market worries about inflation and impending Fed rate hikes.
- The US and Iran are nearing a 60-day ceasefire deal to demine and reopen the Strait of Hormuz.
- Higher energy prices could push the Fed toward interest rate hikes instead of expected rate cuts.
Dow Jones futures advance 0.82% to near 50,100 during European hours on Monday. Meanwhile, the S&P 500 rise 0.93% above 7,550, and the Nasdaq 100 futures gain 1.38% above 29,950. Trading activity is expected to stay subdued as US regular markets will be closed due to the Memorial Day bank holiday.
US stock futures rise amid increasing optimism over a potential US-Iran agreement, which has eased broader market concerns about inflation and impending Federal Reserve (Fed) interest rate hikes.
A report by Axios cited a US official stating that the United States and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.
However, Reuters cited Iran’s Tasnim news agency indicating that the US government is still obstructing certain clauses of the agreement to end the conflict, specifically regarding the release of blocked Iranian assets. Further tempering immediate expectations, US Secretary of State Marco Rubio informed the New York Times that while an agreement with Iran has garnered regional support, a comprehensive nuclear deal could not be achieved quickly or carelessly.
Traders remain cautious as the potential impact of elevated energy prices on inflationary pressures in the United States could recalibrate Federal Reserve expectations away from rate cuts and toward potential future rate hikes. According to the CME FedWatch tool, market participants are now pricing in a nearly 41.0% probability that the Fed will implement a 25-basis-point interest rate increase by the end of the year.
Market momentum was mixed but generally positive last week, with the Dow Jones leading the gains at 2.13%. The S&P 500 and Nasdaq 100 also climbed, posting modest increases of 0.88% and 0.45%, respectively. This upward movement was largely driven by a strong wave of corporate earnings and growing optimism surrounding peace negotiations in the Middle East.
Looking ahead, investor attention is shifting toward critical US economic indicators and upcoming corporate updates. Key data releases on the radar include PCE inflation, GDP growth, and personal income and spending metrics. Additionally, Wall Street will be closely watching corporate earnings reports from several major companies, including Zscaler, Salesforce, and Dell Technologies.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
Here is what you need to know on Monday, May 25:
Risk flows dominate the action in financial markets at the begining of the week as the latest headlines suggest that the United States (US) and Iran are looking to reach an agreement to reopen the Strait of Hormuz. The economic calendar will not feature any high-impact data releases on Monday and stock and bond markets in the US will remain closed in observance of the Memorial Day holiday.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.40% | -0.16% | -0.04% | -0.46% | -0.35% | -0.36% | |
| EUR | 0.31% | -0.09% | 0.15% | 0.26% | -0.16% | -0.05% | -0.07% | |
| GBP | 0.40% | 0.09% | 0.24% | 0.35% | -0.08% | 0.06% | 0.01% | |
| JPY | 0.16% | -0.15% | -0.24% | 0.12% | -0.34% | -0.23% | -0.26% | |
| CAD | 0.04% | -0.26% | -0.35% | -0.12% | -0.44% | -0.33% | -0.37% | |
| AUD | 0.46% | 0.16% | 0.08% | 0.34% | 0.44% | 0.12% | 0.07% | |
| NZD | 0.35% | 0.05% | -0.06% | 0.23% | 0.33% | -0.12% | -0.04% | |
| CHF | 0.36% | 0.07% | -0.01% | 0.26% | 0.37% | -0.07% | 0.04% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Citing a US official, Axios reported late Saturday that the US and Iran are close to signing an agreement that involves a 60-day ceasefire extension during which the Strait of Hormuz would be reopened. In this deal, Iran would reportedly clear mines it deployed in the waterway and allow ships to pass freely inn exchange for the US would lifting its blockade on Iranian ports.
US Secretary of State Marco Rubio said early Monday said that there is a "fairly strong proposal on the table regarding their capacity to open the straits." Meanwhile, Iranian news outloet ISNA reported that a senior Iranian diplomat said that the nuclear issue and highly enriched uranium reserves will be discussed with the US in 60-day negotiations in exchange for the lifting of sanctions and unfreezing of assets. On a more cautious note, Iran's foreign ministry spokesperson said that the framework deal has no specific details about the management of the Strait of Hormuz, adding that even though they have reached conlusions on many topics, that doesn't mean they are close to signing an agreement.
After starting the week with a bearish gap, the US Dollar (USD) Index stays in negative territory at around 99.00 in the European session on Monday. In the meantime, the barrel of West Texas Intermediate is trading at around $91.00, down about 5% on a daily basis.
Gold gathers bullish momentum and trades above $4,560, rising more than 1% on the day.
EUR/USD stays in positive territory slightly below 1.1650 after opening with a bullish gap.
USD/JPY closed the previous week marginally higher but corrected lower in the Asian session on Monday. At the time of press, the pair was fluctuating at around 159.00.
GBP/USD rises toward 1.3500 in the European session on Monday and trades at its highest level in 10 days.
NZD/USD trades above 0.5870 and gains nearly 0.4% on the day. In the Asian session on Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce monetary policy decisions.
AUD/USD rises about 0.5% on the day above 0.7150 after ending the previous week in the red. April Consumer Price Index (CPI) data will be featured in the Australian economic docket on Wednesday.
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.
HSBC analysts argue that foreign exchange intervention alone is unlikely to keep the USD/JPY pair sustainably below 160. They stress that effectiveness increases when intervention coincides with Bank of Japan (BoJ) rate hikes and lower Oil prices. They also warn that emerging fiscal concerns and rising long-dated JGB yields could limit any sustained Japanese Yen (JPY) appreciation in the near term.
Policy follow-through key for Japanese Yen
"The key lesson from 2024 is that intervention without policy follow‑through tends to lose impact quickly."
"In practical terms, intervention alone is unlikely to keep USD/JPY below 160 for a prolonged period of time."
"It is more effective when supported by broader conditions − such as a Bank of Japan (BoJ) rate hike and lower oil prices − which together could help USD/JPY grind lower over time."
"However, fiscal concerns may re-emerge and complicate the near-term outlook. These risks could surface in late May, linked to supplementary budget discussions, and/or in June, when Japan releases its annual medium‑term economic and fiscal policy guidelines, expected to be Prime Minister Takaichi’s first."
"Such developments could push long‑dated Japanese government bond (JGB) yields higher, reinforcing the view that underlying domestic pressures remain persistent."
"Overall, even with intervention, USD/JPY may struggle to establish a clear downward trend over the near term unless supportive policy and external conditions align."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold kicks off the new week on a positive note as US-Iran peace deal hopes undermine the USD.
- The US and Iran remain at odds over key issues, helping limit USD losses amid hawkish Fed bets.
- The technical setup warrants caution for bulls before positioning for further appreciation.
Gold (XAU/USD) remains well bid above the $4,550 level through the first half of the European session on Monday, albeit it remains below the top boundary of a nearly one-week-old range amid mixed fundamental cues. Developments over the weekend spurred hopes for a potential US-Iran peace deal, undermining the US Dollar's (USD) reserve currency status and lending support to the commodity. The US and Iran, however, remain at odds over key issues. This, along with hawkish US Federal Reserve (Fed) expectations, helps limit the USD losses and keeps a lid on any further gains for the non-yielding yellow metal.
Axios reported late Saturday, citing a US official, that the US and Iran are close to signing an agreement that involves a 60-day ceasefire extension during which the Strait of Hormuz would be reopened. Adding to this, US President Donald Trump said that the framework for a peace deal with Iran was largely negotiated. This boosts investors' confidence and the resultant slump in Crude Oil prices ease inflationary fears, triggering a steep decline in US Treasury bond yields amid relatively thin liquidity as many global markets are closed for holidays. This, in turn, is seen weighing heavily on the Greenback.
Meanwhile, Trump explicitly instructed his representatives not to rush into a deal with Iran and said that a naval blockade of Iranian ports will remain in effect until a formal, certified agreement is signed. Furthermore, major disagreements over Iran's nuclear program should cap the optimism. Moreover, bets that the US Fed will hike interest rates in 2026 could act as a tailwind for the USD. This, in turn, makes it prudent to wait for some follow-through buying before confirming that the Gold has formed a near-term bottom around the $4,450 area, or its lowest level since late March, touched last week.
XAU/USD 4-hour chart
Gold needs to surpass range hurdle near $4,590 to back case for further gains
From a technical perspective, the XAU/USD pair holds within a downward parallel channel. The channel ceiling coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart, forming a cluster resistance near the $4,650 area, suggesting that rallies remain vulnerable despite the positive undertone in momentum. The Moving Average Convergence Divergence (MACD) is above zero, and the histogram is still positive. Moreover, the Relative Strength Index (RSI) hovers in the mid-50s, hinting at a tentative recovery rather than a clear trend shift.
On the downside, the lower boundary of the parallel channel around $4,360 marks the next key support area. A break beneath this floor would reinforce the broader bearish structure and open the door to a deeper correction within the medium-term downtrend.
(The technical analysis of this story was written with the help of an AI tool.)
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.
Commerzbank analysts highlight that USD/INR fell 0.5% to 95.71 and is down 0.3% on the week, as the Reserve Bank of India (RBI) intervenes in spot markets and tightens gold import rules. They note reports that Governor Sanjay Malhotra may consider a rate hike on 5 June, potentially complemented by USD bond issuance and special deposit schemes to bolster the Indian Rupee (INR).
Policy mix aims to stabilise INR
"In FX, USD/INR fell 0.5% to 95.71 last Friday and it declined 0.3% for the week."
"INR has remained under pressure recently due to elevated global oil prices and firm USD demand."
"However, recent restrictions on gold imports and interventions in the spot market by the Reserve Bank of India (RBI) have provided some support for INR."
"Earlier last week, local media reported that RBI Governor Sanjay Malhotra is considering hiking rates at the next meeting on 5 June to provide further support for INR."
"It is unlikely to be a standalone move. It could be supplemented by other measures such as USD bond issuance and schemes to attract dollar deposits from non-resident Indians, mirroring measures taken during the 2013 Taper Tantrum."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Philip Wee at DBS highlights uncertainty around new Fed Chair Kevin Warsh’s approach, noting President Trump’s preference for lower rates and Warsh’s reform-oriented stance. Warsh may downplay dot plots and even abstain from June rate forecasts, which could create friction with markets and colleagues if PCE inflation surprises on the upside, adding to policy ambiguity for Dollar traders.
Warsh seen downplaying dot plots
"Meanwhile, Kevin Warsh was sworn in as the 17th Fed Chair at the White House on May 22. While stating that Warsh would “do his own thing” in upholding the Fed’s independence and interest rates, President Trump did not hide his desire for Warsh to start lowering interest rates."
"Warsh’s acceptance speech focused on leading a “reformed-oriented” Fed by moving away from backward-looking and economic dogmas, pursuing a dual mandate that can simultaneously achieve lower inflation with stronger growth, reducing the Fed’s balance sheet, and pivoting away from forward guidance dot plots and heavily parsed press conferences."
"Instead, Warsh may abstain from providing his interest rate forecasts in the June Summary of Economic Projections, aligning with his disdain for forward guidance that locks the FOMC into pre-emptive policy paths. Doing so will allow Warsh to either prevent a rift with Trump over a hawkish projection or avoid losing credibility with the market through a dovish forecast."
"Instead, Warsh’s debut FOMC meeting on June 17 could be the start of a phase to downplay the dot plot’s significance as a policy roadmap. However, if this Thursday’s PCE inflation data comes in hot, Warsh’s strategy may create friction with the market and his Fed colleagues."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- NZD/USD fails to extend gains beyond 0.5880 despite a moderate risk appetite.
- Hopes that the RBNZ will stand pat on Wednesday are weighing on NZD bulls.
- Technically, an ascending triangle pattern hints at a deeper recovery.
The New Zealand Dollar (NZD) maintains a moderately negative tone against the US Dollar (USD) on Monday, despite a somewhat brighter market sentiment. The Kiwi Dollar is failing to draw any significant support from market hopes of a peace deal in Iran and remains trading within previous ranges, with upside attempts capped below the 0.5880 area and six-week lows at 0.5815 still in sight.
US President Donald Trump and US Secretary of State Marco Rubio have boosted expectations of a negotiated end to Iran’s war, which is weighing moderately on the safe-haven U.S. Dollar. The NZD, however, is struggling to appreciate further, with investors betting on steady interest rates after the Reserve Bank of New Zealand’s (RBNZ) monetary policy meeting, due on Wednesday.
Inflation pressures remain high in New Zealand amid a sharp increase in energy costs, pressuring the central bank to tighten monetary policy further. Policymakers, however, are expected to take into account that Gross Domestic Product (GDP) is growing at a meagre 0.2% and will refrain from tightening borrowing costs further, wary of tipping the economy into recession.
Technical Analysis: Trading within an ascending triangle pattern
The NZD/USD is holding a neutral-to-slightly bullish tone with price action showing an ascending triangle, a pattern often anticipating bullish outcomes. The 4-hour Relative Strength Index (RSI) hovers in the low 50s, hinting at stabilising momentum, while the Moving Average Convergence Divergence (MACD) remains marginally positive, altogether suggesting a modest bullish bias.
Bulls are facing strong resistance in the 0.5880-0.5890 area, which capped upside attempts several times last week. A sustained break above this cluster would expose a previous support area between 0.5920 and 0.5930 before the May 8, 11, and 12 highs in the 0.5970 area.
On the downside, immediate support is seen at the base of the triangle, at 0.5860, which so far guards the path to the mentioned 0.5815 floor (April 29, May 19 lows) and the April 13 low, at 0.5794.
(The technical analysis of this story was written with the help of an AI tool.)
New Zealand Dollar Price Today
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies today. New Zealand Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.28% | -0.36% | -0.14% | -0.02% | -0.44% | -0.31% | -0.33% | |
| EUR | 0.28% | -0.09% | 0.13% | 0.25% | -0.17% | -0.04% | -0.07% | |
| GBP | 0.36% | 0.09% | 0.21% | 0.34% | -0.10% | 0.06% | 0.01% | |
| JPY | 0.14% | -0.13% | -0.21% | 0.13% | -0.33% | -0.21% | -0.24% | |
| CAD | 0.02% | -0.25% | -0.34% | -0.13% | -0.44% | -0.31% | -0.35% | |
| AUD | 0.44% | 0.17% | 0.10% | 0.33% | 0.44% | 0.13% | 0.10% | |
| NZD | 0.31% | 0.04% | -0.06% | 0.21% | 0.31% | -0.13% | -0.04% | |
| CHF | 0.33% | 0.07% | -0.01% | 0.24% | 0.35% | -0.10% | 0.04% |
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 New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
UOB’s Quek Ser Leang and Lee Sue Ann report that AUD/USD rebounded sharply after recent weakness, with the pair swinging between 0.7100 and 0.7168 and now trading near 0.7155. They see scope for further gains but doubt a clear break above 0.7175, viewing current moves as part of a 0.7100–0.7215 range while longer-term charts still point to downside toward 0.6765 if 0.6850/0.6870 breaks.
Australian Dollar stabilises in broad range
"24-HOUR VIEW: AUD swung between 0.7100 and 0.7168 last Thursday. On Friday, we indicated that “we are not able to derive much from the price action,” and we held the view that AUD “could trade between 0.7120 and 0.7175.” AUD subsequently traded between 0.7117 and 0.7152. AUD closed at 0.7129 (-0.29%) but rose sharply on the open today. The rapid rise has scope to extend, but a clear break of the major resistance at 0.7175 is unlikely. Support is at 0.7145, followed by 0.7130"
"1-3 WEEKS VIEW: We have held a negative AUD stance since the middle of the month. In our most recent narrative from last Thursday (21 May, spot at 0.7150), we noted that “downward momentum is slowing rapidly,” and we pointed out that “a breach of 0.7180 (‘strong resistance’ level) would indicate that the weakness in AUD has stabilised.” AUD rose sharply today, and although our ‘strong resistance’ has not been breached yet, downward momentum has faded. We are neutral on AUD now, and we view the current price movements as part of a range-trading phase between 0.7100 and 0.7215."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- AUD/USD rises as the Australian Dollar gains support from fading safe-haven demand ahead of a US-Iran accord.
- Weakened RBA rate hike expectations may cause the Australian Dollar to face upcoming challenges against the US Dollar.
- Dollar strength could revive as persistent inflationary pressures in the US push expectations away from Fed rate cuts.
AUD/USD holds ground after two days of losses, trading around 0.7170 during the early European hours on Monday. The pair appreciates as the Australian Dollar (AUD) receives support from fading safe-haven demand in anticipation of the United States (US)-Iran accord. Current reports suggest that the two nations are nearing an agreement centered on a 60-day ceasefire extension.
As part of a potential US-Iran peace deal, the Strait of Hormuz would reopen, Iran would clear the mines it deployed in the waterway and permit free shipping passage, and the United States would respond by lifting its current blockade on Iranian ports.
However, the Australian Dollar may face upcoming challenges against the US Dollar as expectations for further monetary tightening by the Reserve Bank of Australia (RBA) have weakened. This shift in sentiment follows a surprise rise in the nation's jobless rate, which has dampened forecasts for future interest rate hikes.
According to recent data, Australia’s unemployment rate unexpectedly climbed to 4.5% in April, up from 4.3% in March. This spike marks the highest jobless level the country has seen in about four and a half years.
In response to the economic data, financial markets quickly adjusted their expectations. Westpac pricing indicates that the probability of a rate hike at the RBA's next meeting plummeted to just 3%, down from 13% prior to the release.
The decline of the Greenback may be limited by persistent inflationary pressures in the United States, which have caused investors to recalibrate their Federal Reserve expectations away from rate cuts and toward potential future rate hikes. According to the CME FedWatch tool, market participants are now pricing in a nearly 41.0% probability that the Fed will implement a 25-basis-point interest rate increase by the end of the year.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- USD/JPY recovers around 30 pips from the daily low and fills a major part of the bearish gap opening.
- Economic concerns due to Hormuz risks continue to undermine the JPY amid mixed Iran peace signals.
- Geopolitical uncertainties and rising Fed rate hike bets help limit USD losses, also supporting the pair.
The USD/JPY pair attracts some dip-buyers following a bearish gap opening on Monday and reclaims the 159.00 mark during the early part of the European session. Moreover, spot prices remain well within striking distance of a three-week high, touched last Thursday, and seem poised to appreciate further amid mixed signals over a potential US-Iran peace deal.
Developments over the weekend fuel hopes for a potential deal to end a nearly three-month-long Iran war and boost investors' confidence, undermining the US Dollar's (USD) reserve currency status. However, the US and Iran remained at odds over key issues, including blockades on the Strait of Hormuz and Tehran's nuclear program. US President Donald Trump said on Sunday that he had told his representatives not to rush into any deal with Iran. This keeps geopolitical risks in play and caps the market enthusiasm.
Furthermore, traders have nearly fully priced in at least one 25 basis points (bps) interest rate hike by the US Federal Reserve (Fed) in early 2027, which helps limit deeper USD losses. Meanwhile, investors remain worried about economic risks stemming from the continued disruption of energy supplies. This, in turn, undermines the Japanese Yen (JPY) and contributes to the USD/JPY pair's intraday bounce of around 30 pips. However, intervention speculations might hold back the JPY bears from placing aggressive bets.
Meanwhile, the liquidity is likely to remain low on the back of holidays in the US and several key markets in Europe. This also warrants some caution before positioning for any further appreciating move for the USD/JPY pair. However, the fundamental backdrop, along with the emergence of some intraday dip-buyers, suggests that the path of least resistance for spot prices remains to the upside.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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