Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD higher after Fed holds steady
The US dollar was stronger overnight after the US Federal Reserve paused its recent rate-cutting cycle and instead decided to keep interest rates steady at 4.25% to 4.50%.
Initially, the USD jumped higher, but Fed chair Jerome Powell later said that changes to the statement – including removing the phrase “progress towards inflation goal” – was not meant to send a signal.
Regardless, the Fed’s move to pause its rate-cutting cycle is likely to be supportive of the US dollar and could lead to further USD gains, especially as other central banks continue to cut.
Notably, the Bank of Canada cut rates again overnight, dropping from 25bps to 3.00%, with Canadian rates now well down on their 5.00% peak last year. The CAD weakened after the move.
Aussie weaker as inflation signals RBA cuts
Australian interest rates also look more likely to fall after yesterday’s December-quarter inflation figures came in below expectations.
Headline annual CPI was reported at 2.5% (in line with expectations) while the core figure came in at 3.2% versus the 3.3% expected. The quarterly number for each series was also below expectations.
Financial markets now see a 92% chance of rate cut on 18 February.
The AUD/USD fell 0.3% yesterday while the risk of further RBA rate cuts means the Aussie is vulnerable to further losses.
On AUD/USD, major support is seen at 0.6130 — a break below this level sets up a move back to 0.6000.
ECB seen likely to cut, but euro still gains
The European Central Bank meets tonight with a 25bps rate cut to 2.75% in its deposit facility now fully priced in.
Investor sentiment around the European economy has been overwhelmingly negative, with recession fears, weak growth prospects, and persistent geopolitical risks dominating the narrative.
As a result, the growing expectations for rate cuts hasn’t impacted the euro in recent days, with AUD/EUR and NZD/EUR both near one-month lows.
Aussie hit by CPI drop
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.
