Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie, kiwi lower as Fed decision looms
The Australian and New Zealand dollars extended losses from recent highs overnight as markets looked ahead to tonight’s critical decision from the US Federal Reserve.
The AUD/USD fell 0.7% while NZD/USD fell 0.5% with pairs slipping further from the one-month highs seen last week.
The Aussie and kiwi could slip further – or at least face more volatility – with a sequence of major central bank decisions due in the next 48 hours.
The Bank of Canada and Federal Reserve decisions are due overnight while the European Central Bank rate decision is due just after midnight on Friday (AEDT).
Additionally, Australian inflation is due at 11.30am AEDT.
Fed monetary stance to maintain USD market tension
Thursday morning, the FOMC will announce its rate decision. With rates staying on hold for the first time since July, we anticipate that the January FOMC meeting will go smoothly.
We anticipate a hawkish news conference from Chair Powell, highlighting the FOMC’s patience in commencing rate decreases. Powell is probably not going to comment on any possible Trump administration policy.
There’s a bid for the USD again post Trump’s comments on tariffs and we see the potential for a positive uptick in the US dollar in next upcoming weeks.
The dollar index currently sits on 50-day EMA of 107.46 – historically a buying opportunity for USD buyers.
European Central Bank seen as likely to cut
We expect the ECB to lower the depo rate by 25bp to 2.75% on 30 January. The January 2025 meeting seems to be finalised, according to recent ECB commentary. Additionally, we believe that data results that are in line with the ECB’s expectations are in favour of a rate cut.
Financial markets see a more than 100% chance of 25bps cut (source: Bloomberg)
Since the ECB made a significant revision to the advice in December 2024, we do not anticipate any changes.
We believe that if the PMIs improve and the momentum for services inflation picks up speed, the differences among ECB members may become more apparent starting in March.
That said, FX markets have been more focused on the euro’s recent post-inauguration recovery, so rate cut worries have had little impact on the EUR.
Aussie, kiwi extend losses ahead of Fed
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 Jan – 1 Feb
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
