Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD index hits three-year lows
The US dollar, as measured by the USD index, broke below key three-year lows overnight as this week’s lower US inflation reading and last night’s rising unemployment claims caused markets to speculate the US Federal Reserve might be more willing to cut interest rates.
Importantly, the Fed’s likely moves to cut rates stand in contrast to the European Central Bank, which might pause rate cuts after a rapid move lower in official rates from 4.50% in April 2024 to 2.15% now. The EUR/USD surged to four-year highs.
The euro’s gains saw the US dollar weaker in other markets. The NZD/USD hit seven-month highs while USD/SGD fell to new 11-year lows.
Aussie back at highs on inflation expectations
The Aussie benefited from the greenback’s weakness with the AUD/USD closing at the highest level since November.
The Aussie was helped by a jump in inflation expectations. Consumer inflation expectations in Australia jumped from 4.1% in May to 5% in June, according to the Melbourne Institute—the highest level since July 2023.
The rising inflation expectations differ from the March-quarter headline CPI, released in April, which came in at 2.4% year-over-year, aligning with the Reserve Bank of Australia’s target midpoint.
Markets are currently pricing in a 25bps rate cut at the RBA’s July meeting.
Looking lower, the next key support level for the pair sits at the 21-day EMA of 0.6469, followed by 200-day EMA of 0.6423.
Japanese yen gains on USD weakness
Before reinstating higher tariffs on multiple economies, due on 9 July, US President Donald Trump announced he will send letters to trading partners in the next week or two, setting unilateral duty rates.
The news pressured the US dollar, causing it to trade softer.
Bloomberg noted that Trump often sets two-week deadlines that shift or go unmet, leaving uncertainty around whether he will follow through on this plan.
While Trump said he’s open to extending the deadline to allow more time for negotiations, he doesn’t see the need for it.
In APAC FX, the Japanese yen is gaining as investors seek safe-haven assets amid trade uncertainty and rising geopolitical tensions.
The Japanese yen hit fresh weekly highs overnight, with the 50-day EMA acting as key resistance, followed by the 200-day EMA at 148.70.
The yen’s climbed from one-month lows versus both the Australian and Singapore dollars.
USD breaks support
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 9 – 14 May
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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.
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