Forex News
- AUD/USD gains some positive traction on Monday amid a combination of supporting factors.
- The divergent Fed-RBA policy expectations lend support to the AUD amid a positive risk tone.
- Hopes for more stimulus from China benefit the Aussie and back the case for further upside.
The AUD/USD pair attracts some buyers in the vicinity of mid-0.7000s during the Asian session on Monday and, for now, seems to have stalled its corrective pullback from a three-year high, touched last week. Spot prices currently trade around the 0.7080 region, up 0.10% for the day, and seem poised to appreciate further amid a supportive fundamental backdrop.
The US Dollar (USD) continues with its struggle to attract any meaningful buyers and extends its sideways consolidative price in a familiar range held over the past week or so amid dovish Federal Reserve (Fed) expectations. In fact, traders ramped up their bets that the US central bank will lower borrowing costs in June following the release of softer US consumer inflation figures on Friday.
Moreover, the Fed is expected to deliver at least two 25 basis points (bps) rate cut in 2026. This marks a significant divergence in comparison to expectations that the Reserve Bank of Australia (RBA) will hike interest rates again in May, which continues to act as a tailwind for the Australian Dollar (AUD) and validates the constructive outlook for the AUD/USD pair amid a positive risk tone.
Meanwhile, China's inflation figures released last week fueled concerns that deflationary pressures continue to weigh on the world’s second-largest economy. The data raised hopes for more fiscal and monetary stimulus from China, which further benefits the China-proxy Aussie. The focus shifts to the release of the FOMC Minutes on Wednesday and Australian employment details on Friday.
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.
- EUR/USD edges lower amid muted trade due to the US Presidents’ Day and China’s New Year holidays.
- US Dollar may weaken after softer January CPI strengthened expectations of Fed rate cuts later this year.
- The Euro may gain support as the ECB appears largely unconcerned about its recent appreciation.
EUR/USD opens the week on a softer note, trading near 1.1860 during the Asian session on Monday. Activity is likely to remain muted, with United States (US) markets closed for the Presidents’ Day holiday, while Mainland China is also shut for the week-long Lunar New Year break.
Losses in the EUR/USD pair may be limited as the US Dollar (USD) could ease following softer January Consumer Price Index (CPI) figures, which reinforced expectations that the Federal Reserve (Fed) could cut rates later this year.
US CPI rose 2.4% year-over-year (YoY) in January, slowing from 2.7% in December and coming in below the 2.5% forecast. On a monthly basis, consumer inflation moderated to 0.2%, down from 0.3% previously and under market expectations of 0.3%.
Moreover, recent data showed that Nonfarm Payrolls increased by the most in over a year, while the Unemployment Rate unexpectedly declined, pointing to a stabilizing labor market. Markets widely expect the Fed to keep rates unchanged in March before delivering two 25-basis-point cuts by year-end.
According to the CME FedWatch tool, investors now assign nearly a 90% probability to the Fed holding rates steady at its March meeting, up from 81% a week earlier. Markets are pricing in roughly two 25-basis-point cuts by the end of the year, with the first move seen in June at around a 52% probability.
Meanwhile, the Euro (EUR) found support amid signals that the European Central Bank (ECB) remains largely unconcerned about the currency’s recent appreciation. ECB President Christine Lagarde, who stated that the euro area’s inflation outlook is in a “good place,” cautioned against overreacting to short-term or volatile data.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The Japanese economy expanded 0.1% over the quarter in the fourth quarter (Q4) of 2025, the preliminary report published by the Cabinet Office showed on Monday. This reading marks a reversal from a 0.7% contraction recorded in Q3, though it fell short of market expectations for a 0.4%.
On an annualized basis, Japan’s Gross Domestic Product (GDP) expanded 0.2%, compared with forecasts of 1.6% and the third quarter’s downwardly revised 2.6% decline.
Market reaction
As of writing, the USD/JPY pair is trading just above the 153.00 mark, up nearly 0.55% for the day.
(This story was corrected on February 16 at 07:51 GMT to say that Japan's third quarter GDP contracted by a revised 2.6% on an annualize basis in the third quarter, not 2.3% reportedly previously)
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
- USD/JPY kicks off the new week on a positive note and snaps a five-day losing streak.
- The weak Q4 GDP print from Japan tempers BoJ rate hike bets and weighs on the JPY.
- Dovish Fed expectations keep the USD bulls on the defensive and might cap the pair.
The USD/JPY pair attracts some buyers during the Asian session on Monday and climbs back above the 153.00 mark following the disappointing release of Japan's Q4 GDP report. Spot prices, for now, appear to have snapped a five-day losing streak, reaching a two-week low last Thursday, although the upside potential still seems limited.
Data published by Japan’s Cabinet Office revealed that the economy grew 0.1% in the fourth quarter of 2025, compared to a 0.7% contraction recorded in the previous quarter. The reading, however, was below market expectations and tempered bets for an immediate interest rate hike by the Bank of Japan (BoJ). Apart from this, the underlying bullish sentiment exerts some downward pressure on the safe-haven Japanese Yen (JPY) and assists the USD/JPY pair to gain some positive traction at the start of a new week.
Meanwhile, the data is likely to give Japan's Prime Minister Sanae Takaichi impetus to announce more stimulus. Market players, however, remain hopeful that Takaichi could be fiscally responsible. and that her policies will boost the economy. This might prompt the BoJ to stick to its policy normalization path, which should act as a tailwind for the JPY. The US Dollar (USD), on the other hand, struggles to lure buyers amid dovish Federal Reserve (Fed) expectations, which might contribute to keeping a lid on the USD/JPY pair.
According to the CME Group's FedWatch Tool, traders ramped up their bets that the US central bank will lower borrowing costs in June after data released on Friday showed that consumer inflation rose less than expected in January. In fact, the headline US Consumer Price Index (CPI) rose 0.2%, while the core gauge increased 0.3% last month. This, to a larger extent, overshadowed last Wednesday's upbeat US Nonfarm Payrolls (NFP) report and keeps the USD bulls on the defensive, which, in turn, should cap the USD/JPY pair.
Economic Indicator
Gross Domestic Product (QoQ)
The Gross Domestic Product (GDP), released by Japan’s Cabinet Office on a quarterly basis, is a measure of the total value of all goods and services produced in Japan during a given period. The GDP is considered as the main measure of Japan’s economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.
Read more.Last release: Sun Feb 15, 2026 23:50 (Prel)
Frequency: Quarterly
Actual: 0.1%
Consensus: 0.4%
Previous: -0.6%
Source: Japanese Cabinet Office
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