Forex News

UOB’s Lee Sue Ann notes that the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 2.75% in a narrow 4-3 decision, but maintained a clear tightening bias. With inflation still above target and risks skewed to the upside, UOB continues to expect a 25 bps hike to 3.00% at the December Monetary Policy Statement meeting.

RBNZ pause seen as hawkish hold

"The RBNZ's explicit guidance in the accompanying media release that tighter monetary policy is likely to be required leaves the door firmly open for further policy tightening in coming meetings."

"The inflation outlook remains the key driver of policy deliberations. The RBNZ expects headline inflation to rise to 4.4% y/y in the Dec quarter, largely reflecting higher global fuel prices and the depreciation of the NZD since the Sep policy meeting."

"The narrow 4-3 split suggests that the Committee is moving closer to another rate increase and that only modest upside surprises in inflation or domestic pricing behaviour may be needed to shift the balance in favour of further tightening."

"Against this backdrop, we now expect the RBNZ to raise the OCR by a further 25bps to 3.00% at the 9 Dec monetary policy meeting. By then, policymakers will have the benefit of additional data on inflation, labour market conditions and economic activity."

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

• USD/CHF eases below 0.8300 from 0.8313 highs, but remains 0.5% up on the week so far.
• Easing concerns about the AI sector and hopes of a hawkish hold by the Fed are providing support to the USD.
• In Switzerland, the ZEW Economic Expectations Index fell to a six-month low in October.

The Swiss Franc (CHF) has retraced previous gains against the US Dollar (USD) on Wednesday and trades practically flat on the daily chart, stronger as investors brace for the Federal Reserve’s (Fed) monetary policy decision, due later in the day. The USD/CHF pair is pulling back from two-week highs above 0.8300, but remains more than 0.5% up on the week, at the 0.8295 area as of writing.

Markets are calm with all eyes on the Fed, which is widely expected to leave its monetary policy unchanged, to assess the impact of the 0.25% rate kike approved in September

Markets will look for hints of a December hike

Chairman Kevin Warsh is unlikely to hint at any particular rate path, but investors will look for evidence of the bank’s commitment to bring inflation to the central bank’s target rate to confirm hopes of another rate hike in December.

Christ Turner, Analysts at ING say that “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,” a backdrop they see as broadly supportive for the Dollar.

The ING expert anticipates that Chair Warsh is unlikely to “tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” Nevertheless, the bank assesses that a continued “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

In Switzerland, the ZEW Economic Expectations report, released earlier in the day, has shown further deterioration in October, with the Index hitting a six-month low at -15-3 from 2.6 in September. The impact on the Swissie, however, has been muted.

Commerzbank’s Norman Liebke expects the Bank of Canada (BoC) to deliver a widely anticipated 25 bps hike to 2.5%, though he views this as premature given subdued core inflation. Markets have priced four hikes by September next year, but Commerzbank is more sceptical and sees Canadian Dollar (CAD) reaction hinging on December guidance and updated inflation forecasts.

Rate decision impact hinges on tone

"At 2:45 pm Central European Time this afternoon, the Bank of Canada will announce its interest-rate decision. By now, a 25-basis-point rate hike to 2.5%, with markets pricing in an 80% probability, appears to be almost a done deal."

"After all, markets have already priced in a total of four rate hikes by September next year. However, we remain somewhat more sceptical than the market regarding the future path of interest rates."

"Accordingly, the focus will be, first, on any potential forward guidance for the December meeting and, second, on the BoC’s new inflation forecasts. Macklem has already indicated that the inflation projections will need to be revised upwards. This is hardly surprising, however, given that headline inflation exceeded 3% in the third quarter, whereas the BoC had projected 2.5%."

"The BoC could be at least somewhat nervous about developments in inflation expectations. In the latest BoC survey, 44% of the companies surveyed expect inflation to remain above 3% over the next two years. Against this backdrop, today’s rate hike could also serve to underscore the BoC’s credibility in fighting inflation."

"If the BoC raises rates as expected and essentially reiterates its previous hawkish comments, the CAD is unlikely to move much. If, however, the rate hike fails to materialise or the comments are at least somewhat more dovish, the CAD is likely to depreciate as markets price out some of their rate-hike expectations."

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

ING's Chris Turner sees scope for a partial unwind of a 20bp risk premium in 10-year UK gilt yields following the budget. While the Bank of England's tightening outlook should remain broadly unchanged unless minimum wages surprise, narrowing gilt–Bund spreads may support Sterling. EUR/GBP remains under pressure above 0.8350, with potential downside toward 0.8315.

Budget and gilts steer Pound crosses

"ING's Rates Strategist, Michiel Tukker, estimates that there is a 20bp risk premium in 10-year UK gilt yields – some of which could come out of the market during today's UK budget release."

"The budget itself is not expected to have too much say on the Bank of England's tightening prospects, although any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

"Some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027, with forecasts for the budget deficit heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets."

"EUR/GBP is holding above 0.8350 support and is looking heavy."

"Barring any surprise budget giveaways that hit gilts, it looks as though EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."

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

Standard Chartered’s Nicholas Chia expects the Reserve Bank of Australia to raise its cash rate to 4.85% in Q4, likely on 3 November, after stronger-than-projected Q3 underlying inflation. The bank sees the first rate cut in Q3 2027, with risks of further tightening or delayed easing.

RBA seen hiking and delaying easing

"We now expect the Reserve Bank of Australia (RBA) to lift the cash rate to 4.85% in Q4, likely at the 3 November meeting."

"It also does not help that Q3 trimmed mean inflation (1% q/q SA) came in above the RBA’s projection (0.8%), while short-term inflation expectations have inched up."

"But pre-existing capacity pressures are likely to exacerbate the worsening inflation outlook, with oil prices near cycle highs and upside surprises to global growth feeding through to the Australian economy, potentially delaying a return of inflation to the RBA’s target."

"Specifically, RBA messaging and the September meeting minutes suggest that it is not too concerned about the steady increase in the unemployment rate, given that other labour-market indicators (e.g. vacancies) have improved."

"We remain attuned to the risk of further follow-through by the RBA or, at a minimum, a later start to policy easing in 2027, although we maintain our call for the first RBA rate cut in Q3-2027."

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

OCBC strategists Sim Moh Siong and Christopher Wong note the US Dollar (USD) stayed broadly steady as AI-related risk appetite returned and Oil prices eased. They expect the Federal Reserve (Fed) to hold rates in October, with focus shifting to December. Hawkish Fed risks, US midterms, AI policy and Iran conflict are seen keeping the Dollar supported but with more two-way volatility.

Fed stance and politics shape Dollar

"The USD was broadly steady overnight as appetite for AI-related risk returned and oil prices eased. The AI tailwind could fade in 2027, but we think it is still too early to position for a weaker USD on an AI downturn. For now, hawkish Fed risk should keep the USD supported, although the trade is becoming less one-way."

"We expect the Federal Reserve to stay on hold in October, with the focus shifting quickly to December. September CPI surprised to the upside, while most FOMC participants had already indicated that another hike could be appropriate by year-end."

"Beyond the Fed, the US midterms are the next major political risk for the USD. Republicans retaining unified control would probably deliver the clearest USD-positive surprise, given that markets currently strongly favour Democrats taking the House and see them as modest favourites for the Senate."

"A divided government would likely constrain further fiscal expansion and could therefore be broadly neutral for the USD. Beyond the immediate election outcome, the bigger question is how policy shifts on AI and the Iran conflict affect US growth, inflation and risk sentiment. These forces can pull the USD in different directions, reinforcing our view that the dollar remains supported but is no longer a one-way trade."

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

• EUR/GBP recovers modestly as investors reduce Sterling exposure ahead of the UK Budget.
• The BoE is expected to raise rates in November, while the ECB is seen holding steady on Thursday.
• The technical outlook remains bearish, although oversold RSI conditions suggest selling pressure could ease.

EUR/GBP bears take a breather on Wednesday, pausing a two-day losing streak as traders trim their exposure to the British Pound ahead of the UK Autumn Budget at 12:30 GMT. At the time of writing, the cross trades around 0.8375, up 0.17% on the day, but remains near its lowest levels since May 2025.

UK budget seen as key driver for GBP and gilts

Strategists at Brown Brothers Harriman stress that “GBP and gilts will take their cue from today’s UK budget,” with market attention centred on whether the government “preserves the planned fiscal tightening and keeps gilt issuance in check.” They argue that “maintaining or increasing the fiscal squeeze should support gilts by easing inflation pressure and tempering BoE hike expectations.” However, for the Pound, they caution that “stronger fiscal credibility would compete with lower rate support and limit upside,” whereas “fiscal slippage and heavier gilt issuance can drive gilt yields up and GBP down.”

The BoE announces its interest rate decision on November 5, with traders fully pricing in a 25 bps hike. The central bank has kept rates unchanged so far this year as policymakers saw limited signs of higher energy costs spreading into broader prices and wages. However, the latest rise in inflation, alongside steady labour market and growth figures, has strengthened expectations of an increase.

On the Euro side, concerns over France’s public finances keep sentiment fragile. Separately, attention turns to the European Central Bank’s (ECB) policy decision on Thursday. The ECB is widely expected to leave its deposit rate unchanged at 2.50%, having already raised rates by a cumulative 50 bps this year to counter inflation pressures from higher energy costs. Traders will look for clues on whether policymakers are leaning towards another hike in December.

Technical Analysis

On the daily chart, EUR/GBP extends a bearish bias as spot holds well below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs) clustered from roughly 0.8520 up to 0.8611. The pair is pressurized by this dense overhead supply, while the Relative Strength Index (RSI) around 24 signals oversold conditions that could slow immediate downside, but the negative Moving Average Convergence Divergence (MACD) histogram still hints at persistent selling pressure.

On the topside, initial resistance is seen at the nearby 0.8400 horizontal level, followed by 0.8450 and 0.8500, ahead of the 50-day SMA at 0.8520 and the 100-day SMA at 0.8545, with the 200-day SMA at 0.8611 acting as a more distant cap.

On the downside, immediate support is located at the 0.8360 horizontal line. A clear break below this floor would open the way for an extension of the downtrend, while holding above it could encourage a corrective bounce toward the mentioned resistance band.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

The US Dollar (USD) capitalized on an unexpected monetary policy pause by the Reserve Bank of New Zealand (RBNZ), which held its Official Cash Rate (OCR) at 2.75% in a narrow 4–3 vote despite widespread market expectations for a 25-basis-points (bps) rate hike. The decision sent the New Zealand Dollar sliding by up to 1.6% against the Greenback, dragging NZD/USD toward the lower boundary of its critical multi-month support area at 0.5560/0.5550. With the RBNZ signaling that further tightening may still be necessary to combat rising fourth-quarter inflation, market attention is focused on whether US Dollar strength will push NZD/USD into a deeper technical breakdown or whether overstretched Fed interest rate expectations will cap further USD gains.

Societe Generale warns NZD/USD breakdown below 0.5560 risks fall toward 0.5480

Analysts at Societe Generale highlight that the RBNZ's decision to leave the OCR unchanged at 2.75% has put severe pressure on the New Zealand Dollar, driving NZD/USD directly into the lower boundary of its multi-month trading range. If buyers fail to defend the critical 0.5560/0.5550 support zone, the pair faces a higher risk of an extended downtrend targeting multi-year lows.

"NZD/USD is challenging the lower boundary of its multi-month range at 0.5560/0.5550, a crucial support zone... A short-term rebound cannot be ruled out; however, the recent pivot high at 0.5710 could act as resistance... If the pair fails to defend the support at 0.5560/0.5550, the risk of a deeper downtrend would increase... In such a scenario, the next objectives could be located at the April 2025 low near 0.5480 and projections at 0.5420."

Commerzbank projects NZD weakness on dovish RBNZ repricing but sees limits to USD gains

Norman Liebke at Commerzbank notes that while the RBNZ surprised markets with a 4–3 vote to pause rates at 2.75%, high headline inflation will likely force a December rate hike. However, with money markets pricing in roughly four rate increases by next September, Liebke sees limited medium-term upside for the Kiwi as those expectations are scaled back, though overextended Fed pricing should prevent an unchecked US Dollar rally.

"The Reserve Bank of New Zealand left its policy rate unchanged at 2.75%, contrary to market expectations... The Kiwi temporarily fell by 1.6% against the USD to almost 0.56. Over the medium term, however, we do not see much upside for the NZD either, given what we consider overly hawkish market expectations... While we continue to expect a rate hike in December, we are more sceptical than the market about the medium-term outlook. As rate-hike expectations are pared back, the Kiwi is therefore likely to weaken. At the same time, we also consider current expectations for the Fed to be too hawkish, which should limit the extent of any NZD depreciation."

Key Takeaway

The RBNZ's unexpected rate pause has reinforced the US Dollar's relative dominance, driving NZD/USD to test pivotal support zone at 0.5560/0.5550. While Societe Generale warns that a failure to hold this area risks opening a technical path down to 0.5480, Commerzbank projects that dovish repricing of RBNZ rate hikes will weigh on the Kiwi but, in the Fed’s case, the bank argues that overstretched hawkish pricing will ultimately constrain the US Dollar's capacity to extend gains significantly further.

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