FX OVERVIEW
The Federal Reserve’s hawkish repricing remains the dominant force, lifting the dollar against most major currencies as markets absorb higher-for-longer U.S. rates and a delayed easing cycle. Regional hawkish signals from the RBA and selective support for the yuan are providing exceptions, while the BoJ’s cautious tightening and persistent carry demand leave the yen particularly vulnerable.
MAJOR PAIRS
AUDUSD — AUD/USD rose to 0.7120 and reached 0.7136 as RBA Governor Bullock and Deputy Governor Hauser highlighted upside inflation risks and questioned whether current policy is sufficiently restrictive. The pair’s bias is modestly bullish, but a decisive break above the 0.7142 20-day EMA is needed to open 0.7200, 0.7237 and 0.7277; support sits at 0.7084 and 0.7012.
EURUSD — EUR/USD remains under heavy pressure as the Fed’s hawkish rate path and delayed-cut expectations continue to widen the U.S.-euro-area policy differential. The pair is testing 1.1450–1.1460, with rebounds toward 1.1497–1.1500 viewed as corrective; a break lower exposes 1.1435, 1.1400 and 1.1377.
GBPUSD — Stronger-than-expected UK retail sales briefly lifted GBP/USD to 1.3372, but the move failed against the broader dollar rally and a still-dovish BoE stance. The bias remains bearish below 1.3377 resistance and the 1.3484 20-period EMA, with a break of 1.3300 opening further downside.
NZDUSD — NZD/USD remains pressured by the Fed’s tightening shift and New Zealand’s relatively dovish policy backdrop. A sustained break below 0.5700 would target 0.5671 and the year-to-date low at 0.5626; recovery above 0.5750 is required to stabilize the technical structure.
USDCAD — USD/CAD is holding near 1.3995 as the widening Fed–BoC policy gap favors the dollar, with the market expecting at least one further Fed hike. The pair retains a bullish bias above its moving averages, targeting 1.4080, 1.4226 and potentially 1.4248; Middle East-driven oil gains are the main near-term risk to the long-USD view.
USDJPY — USD/JPY has extended above 158.00 toward the psychologically important 160.00 area after the BoJ paired a 25 bp hike with a divided 7–2 vote, cautious guidance and lower inflation projections. The trend remains bullish on carry demand and Fed–BoJ divergence, but 160.00 is now a clear intervention threshold, especially after Tokyo’s renewed scrutiny of exchange-rate moves.
USDCNY — The PBOC fixed USD/CNY at 6.7521, stronger than the prior 6.7580 fixing but above the market estimate, reinforcing its effort to manage yuan volatility. The bias is toward yuan stability or modest appreciation rather than an uncontrolled dollar rally, although the fixing-market mismatch may generate short-term volatility.
USDKRW — USD/KRW remains biased higher as foreign investors sold KRW14 trillion of Korean equities over the past week, including KRW2.3 trillion in one session. Capital outflows outweigh softer Treasury yields and lower oil prices; sustained pressure could take the pair toward 1410, with 1387 the immediate resistance marker cited.
USDSGD — USD/SGD is consolidating between 1.2735 and 1.2775 after its earlier rally, while strong Singapore export data has yet to translate into sustained SGD appreciation. The medium-term bias remains bullish above 1.2710 support, with targets at 1.2800 and 1.2835, but falling U.S. yields and fading RSI momentum argue for near-term consolidation.
CENTRAL BANK WATCH
- Federal Reserve: A 25 bp hike and a hawkish dot-plot revision have reinforced expectations for higher-for-longer U.S. rates and limited near-term easing. This remains the central support for the dollar.
- Reserve Bank of Australia: Bullock and Hauser delivered a hawkish signal by emphasizing inflation risks and questioning whether current policy is sufficiently restrictive. Markets are increasingly focused on the possibility of another hike in September.
- Bank of Japan: The BoJ delivered a widely expected 25 bp hike to 1.25%, but the 7–2 vote, cautious guidance and delayed inflation projections undermined the yen. The decision was interpreted as a limited tightening step rather than a decisive policy pivot.
- Bank of England: The BoE held rates at 3.75% while warning that inflation could approach 4% in early 2027. Three MPC members favored a hike to 4.00%, but the signal was not strong enough to offset dollar strength.
- ECB and PBOC: The ECB’s incremental tightening has failed to counter the Fed’s stronger policy signal. The PBOC continues to use the daily fixing to restrain yuan volatility and project currency stability.
MACRO DRIVERS
- U.S. rate differentials dominate: The Fed’s hawkish guidance is supporting the dollar across G10, particularly against the euro, sterling, kiwi and Canadian dollar.
- Carry demand is driving yen weakness: The BoJ’s cautious tightening has failed to offset the yield gap, leaving USD/JPY exposed to a test of 160 despite rising intervention risk.
- China is managing a countertrend yuan: Firmer PBOC fixings and a stronger yuan signal policy support for stability, with the currency also carrying geopolitical significance ahead of the Xi–Trump summit.
- Capital flows are replacing broad risk sentiment as a key EM driver: Heavy foreign equity outflows are weakening KRW, while strong Singapore exports provide fundamental support for SGD that has not yet overcome U.S. yield dynamics.
POSITIONING IDEAS
Bullish
- Long AUDUSD: RBA officials are openly flagging persistent inflation risks and the possibility that policy remains too loose. A break above 0.7142 would confirm the bullish setup toward 0.7200 and higher.
- Short USDJPY: The structural trend remains dollar-positive, but the 160.00 intervention threshold and renewed Japanese official scrutiny create a high-conviction asymmetric risk near current extremes.
- Long yuan / short USDCNY: Continued firm PBOC fixings and policy support favor yuan appreciation or at least sustained USD/CNY containment, particularly if China–U.S. tensions ease.
Bearish
- Short EURUSD: Fed–ECB policy divergence remains the clearest major-pair trend, with a break below 1.1450–1.1460 targeting 1.1400 and potentially 1.1377.
- Short NZDUSD: The Fed’s hawkish repricing and New Zealand’s dovish stance favor a break below 0.5700, exposing 0.5671 and 0.5626.
- Long USDCAD: The 175 bp policy-rate gap and strong technical momentum support further upside toward 1.4080 and 1.4226, barring a material BoC shift or a sustained oil rally.
- Long USDKRW: Persistent foreign equity outflows remain a direct and measurable source of won weakness, keeping the pair biased toward 1410.