Fed hikes, dollar gains
The greenback dominated the price action last week. The US dollar rose to a seven-week high after the Federal Reserve delivered a unanimous 25bp rate hike to 3.75%-4.00%, its first increase since 2023. Updated projections showed 16 of 18 policymakers expect at least one more rate rise this year, reinforcing the Fed’s inflation-fighting stance.
The stronger US dollar saw gained versus most markets. Over the week, USD/JPY gained 1.6%, NZD/USD fell 1.0%, while GBP/USD 0.8%.
US economic data remained firm, with August retail sales rising 1.2% m/m versus 0.8% expected, while sales excluding autos climbed 1.4%. Import prices also increased 0.7%, highlighting ongoing inflation pressures.
The Bank of England kept rates unchanged at 3.75%, while the Bank of Japan raised rates by 25bp to 1.25% in a split decision. The dovish tone from the BoJ weighed on the yen and reinforced policy divergence across major economies.
Looking ahead, attention shifts to September S&P PMI surveys across the major economies, which should provide a timely read on business sentiment following higher oil prices and tighter monetary policy settings.
Markets will also continue monitoring developments ahead of next week’s meeting between President Trump and Gulf leaders as investors assess the potential for de-escalation in the Middle East conflict.
Aussie weaker, but losses moderated by RBA warnings
The AUD/USD fell 0.3% last week but remained the best performing major currency versus the stronger USD dollar helped by expectations of local rate hikes.
On Friday, Reserve Bank of Australia governor Michele Bullock told the House of Representatives Economics committee, “inflation is too high…we are focused on getting it back down.”
We continue to expect a 25bp RBA rate hike, with risks tilted towards two additional 25bp increases rather than a pause. However, the Fed’s renewed focus on inflation has lifted US yields and the US dollar, keeping the AUD/USD mostly pressured.
For AUD/USD, support is located at the 100-day EMA of 0.7068, followed by 0.7000. Resistance sits at the 21-day EMA of 0.7143 and then 0.7200.
BoJ’s hike no help for JPY
The Bank of Japan’s widely anticipated rate hike failed to support the currency after policymakers signalled little urgency around further tightening. Two board members opposed the rate increase, while no members argued for a larger move.
USD/JPY has risen more than 2% over the past week as markets reassessed the outlook for Japanese rates. The pair remains more than 5% below its July peak, but the latest policy decision has put the global carry trade back in focus.
Initial resistance is located at the 21-day EMA of 156.53, followed by the 50-day EMA at 158.17.
USD outperforms as Fed hikes
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 21 to 26 September
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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.
