• The Australian Dollar declines as market sentiment deteriorates amid fresh tariff threats from US President Donald Trump.
• Australia’s Wage Price Index increased by 0.7% QoQ in Q4 2024, missing the expected 0.8% rise.
• Hawkish remarks from Federal Reserve officials bolster the US Dollar.

The Australian Dollar (AUD) continues to weaken against the US Dollar (USD) for a second straight day on Wednesday, pressured by rising risk aversion following new tariff threats from US President Donald Trump.

Australia’s Wage Price Index increased by 0.7% quarter-over-quarter in Q4 2024, falling short of the expected 0.8% rise and down from the previous quarter’s 0.9% gain. Annually, the index grew by 3.2%, slowing from a revised 3.6% in the prior quarter and aligning with forecasts. This marks the slowest wage growth since Q3 2022.

The AUD faced additional downward pressure after the Reserve Bank of Australia (RBA) cut its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% on Tuesday—the first rate cut in four years.

Following the policy decision, RBA Governor Michele Bullock acknowledged that high interest rates have had an impact but cautioned that it is too soon to declare victory over inflation. Bullock also highlighted the strength of the job market and clarified that further rate cuts are not guaranteed, despite market expectations.

Australian Dollar weakens as the US Dollar strengthens on hawkish Fedspeak

• The US Dollar Index (DXY), which tracks the US Dollar’s performance against six major currencies, rises above 107.00 following Trump’s tariff threats and hawkish remarks from Federal Reserve (Fed) officials.
• President Trump said late Tuesday that he would likely impose tariffs of around 25% on foreign cars, while semiconductor chips and drugs are set to face higher duties, per Bloomberg. Trump added that an announcement will come as soon as April 2.
• San Francisco Fed President Mary Daly said on Tuesday that prospects of further rate cuts in 2025 remain uncertain despite an overall positive lean to US economic factors. Philadelphia Fed President Patrick Harker emphasized support for maintaining a steady interest rate policy, noting that inflation has remained elevated and persistent in recent months. Investors brace for the FOMC Minutes, which will be released on Wednesday.
• Federal Reserve Governor Michelle Bowman stated on Monday that rising asset prices may have slowed the Fed’s recent progress on inflation. While Bowman expects inflation to decline, she cautioned that upside risks remain and emphasized the need for more certainty before considering rate cuts.
• The US Census Bureau reported on Friday that Retail Sales fell by 0.9% in January, following a revised 0.7% increase in December (previously reported as 0.4%). This decline was sharper than the market’s expectation of a 0.1% drop.
• Fed Chair Jerome Powell said in his semi-annual report to Congress that the board officials “do not need to be in a hurry” to cut interest rates due to strength in the job market and solid economic growth. He added that US President Donald Trump’s tariff policies could put more upward pressure on prices, making it harder for the central bank to lower rates.
• On Monday, Chinese President Xi Jinping led a meeting with Alibaba co-founder Jack Ma and other prominent entrepreneurs, signaling Beijing’s renewed support for the private sector, which is now seen as crucial to economic recovery, according to Bloomberg. Xi emphasized the need to eliminate barriers that hinder equal access to production resources and fair market competition.

Australian Dollar poised to surpass 0.6350 amid a bullish market bias

The AUD/USD pair hovers around 0.6340 on Wednesday, trading within an ascending channel pattern that signals a bullish market bias. The 14-day Relative Strength Index (RSI) remains above 50, reinforcing the positive outlook.

On the upside, the AUD/USD pair may test the upper boundary of the ascending channel, which aligns with the key psychological resistance at 0.6400.

Support levels include the nine-day Exponential Moving Average (EMA) at 0.6324, followed by the 14-day EMA at 0.6307. A stronger support zone is near the lower boundary of the ascending channel at 0.6290.

AUD/USD: Daily Chart

• AUD/NZD appreciated as the RBNZ lowered its Official Cash Rate by 50 basis points on Wednesday.
• Traders will closely monitor RBNZ Governor Adrian Orr’s press conference for clues on the central bank’s future policy direction.
• Australia’s Wage Price Index increased by 0.7% QoQ in Q4 2024, missing the expected 0.8% rise.

AUD/NZD extends its gains for the second successive session, trading around 1.1170 during Asian hours. The upside is driven by the Reserve Bank of New Zealand’s (RBNZ) decision to lower the Official Cash Rate (OCR) by 50 basis points (bps) from 4.25% to 3.75%, following the conclusion of the February policy meeting on Wednesday. The decision aligned with the market expectations.

Traders will closely watch RBNZ Governor Adrian Orr’s press conference for insights into the central bank’s future policy stance. Any dovish signals could add to selling pressure on the New Zealand Dollar (NZD), providing support for the AUD/NZD cross.

However, the upside of the AUD/NZD cross could be restrained as the Australian Dollar (AUD) remains subdued following the Reserve Bank of Australia’s (RBA) policy decision on Tuesday. The central bank lowered its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% on Tuesday, as widely expected, marking the first rate cut in four years.

Reserve Bank of Australia Governor Michele Bullock addressed the media after the policy meeting, stating that it’s clear high interest rates have had an impact. However, Bullock emphasized that it’s too early to declare victory over inflation. She also noted the unexpectedly strong jobs market and clarified that the market’s expectation of further rate cuts is not guaranteed.

Australia’s Wage Price Index rose by 0.7% quarter-over-quarter in Q4 2024, below the expected 0.8% increase and the previous quarter’s 0.9% rise. On an annual basis, the index grew by 3.2%, slowing from a revised 3.6% in the prior quarter and matching forecasts. This marked the slowest wage growth since Q3 2022.

• NZD/USD drifts lower for the second straight day after the RBNZ’s expected 50 bps rate cut. 
• Concerns about Trump’s reciprocal tariffs and trade war fears further weigh on the Kiwi. 
• Subdued USD price action could lend support to the pair amid a generally positive risk tone.

The NZD/USD pair attracts some sellers for the second straight day and drops to a three-day low, around the 0.5680-0.5675 area after the Reserve Bank of New Zealand (RBNZ) announced its policy decision this Wednesday.

As was widely expected, the RBNZ lowered the Official Cash Rate (OCR) by 50 basis points (bps) from 4.25% to 3.75% following the conclusion of the February policy meeting. Moreover, the accompanying monetary policy meeting minutes indicated that the committee has scope to lower the OCR further through 2025. This, in turn, exerts some downward pressure on the New Zealand Dollar (NZD) and drags the NZD/USD pair away from a nearly two-month top touched earlier this week.

The US Dollar (USD), on the other hand, struggles to capitalize on the previous day’s positive move amid expectations that the Federal Reserve (Fed) would cut interest rates further this year. Apart from this, a generally positive tone around the equity markets caps the safe-haven Greenback and could offer some support to the risk-sensitive Kiwi. That said, worries about US President Donald Trump’s reciprocal tariffs might hold back bulls from placing fresh bets around the NZD/USD pair.

• USD/CAD gains ground to around 1.4195 in Tuesday’s late American session. 
• Canada’s annual CPI inflation rate rose to 1.9% in January.
• Fed’s Daly said the policy should stay restrictive until more inflation progresses.

The USD/CAD pair trades on a positive note around 1.4195 during the late American session on Tuesday. The hawkish remarks from Federal Reserve (Fed) officials underpin the US Dollar (USD). Investors brace for the FOMC Minutes, which will be released on Wednesday.

Data released by Statistics Canada on Tuesday showed that Canada’s Consumer Price Index (CPI) rose by 1.9% YoY in January, compared to 1.8% in December, matching analysts’ expectations. On a monthly basis, the CPI rose 0.1% versus -0.4% prior. Meanwhile, the Bank of Canada’s Core CPI inflation, which strips out volatile categories like food and energy, climbed to 2.1% YoY in January from 1.8% in December.

Traders reduce their bets for an interest rate cut from the Bank of Canada (BoC) in March after the CPI inflation data. The markets are now pricing in a nearly 63% chance that the BoC will hold rates steady at the March meeting, compared to 56% before the data was released.

On the USD’s front, San Francisco Fed President Mary Daly said on Tuesday that prospects of further rate cuts in 2025 remain uncertain despite an overall positive lean to US economic factors. Philadelphia Fed President Patrick Harker emphasized support for maintaining a steady interest rate policy, noting that inflation has remained elevated and persistent in recent months.

Investors await remarks by Fed officials this week to gather more clues about the path ahead for US interest rates. Any hawkish comments from Fed policymakers could boost the Greenback in the near term.

• EUR/USD drops 0.30% as S&P 500 hits record high.
• Trump confirms 25% auto tariffs, adding trade policy uncertainty.
• Eurozone sentiment improves, but ECB’s Holzmann signals possible March rate cut.

The Euro is set to end Tuesday’s session with more than 0.30% losses against the Greenback as the S&P 500 notches a record high during the North American session. At the time of writing, the EUR/USD trades at 1.0445 below its opening price.

Euro weakens despite improved Eurozone sentiment, ECB rate cut chatter

Risk appetite has improved, yet US President Donald Trump reiterated that he will be applying 25% tariffs on imported automobiles. He added that he will announce large companies that are getting back into the United States (US), related to chips and cars.

The EUR/USD recovered during the last couple of weeks amid the progress of peace talks linked to the Ukraine–Russia conflict.

Earlier, a high-level meeting between high-level US officials and Russia’s policymakers met for the first time, in a meeting that excluded Ukraine from initial discussions. Consequently, Ukraine’s President Volodymyr Zelenskiy postponed its visit to Saudi Arabia planned for Wednesday until the next month, with sources saying the decision was made to avoid giving “legitimacy” to Russia–US talks.

In February, the US NY Fed Empire State Manufacturing Index surged from -12.6 to 5.7. Oliver Allen, Senior US Economist at Pantheon Macroeconomics, said, “The general improvement in the Empire survey in recent months has mirrored the upturn in the headline ISM manufacturing index.”

Other data showed the NAHB Housing Market Index sliding 5 points from 47 to 42 due to elevated mortgage rates and strained inventory of existing homes.

Across the pond, the Eurozone (EU) ZEW Economic Sentiment Index in February improved from 18 to 24.2, suggesting that consecutive rate cuts by the European Central Bank (ECB) have improved the economic outlook.

In the meantime, ECB’s Holzmann said there’s a probability of a March rate cut, though he said that decisions in favor of additional easing are becoming more demanding, according to Bloomberg.

On Wednesday, the EU’s economic docket Is absent. In the US, the latest FOMC meeting minutes, Housing Starts and Building Permits for January.

• NZD/USD gains positive traction for the third straight day amid sustained USD selling.
• The divergent Fed-RBNZ expectations warrant caution for aggressive bullish traders. 
• Last week’s breakout above the 0.5700 mark supports prospects for additional gains.

The NZD/USD pair attracts buyers for the third successive day on Monday and climbs to a two-month peak, around the 0.5750 area during the Asian session amid the prevalent US Dollar (USD) selling bias.

The global risk sentiment gets a minor lift from the latest optimism led by US President Donald Trump’s approach to ending the protracted Russia-Ukraine war. Apart from this, a delay in Trump’s reciprocal tariffs keeps the USD depressed near its lowest level since 17 touched on Friday and acts as a tailwind for the NZD/USD pair.

The Greenback is further undermined by Friday’s disappointing US Retail Sales, which dropped by the most in nearly two years in January. In fact, The US Census Bureau reported that Retail Sales declined by 0.9% during the reported month, worse than the decrease of 0.1% expected and the 0.7% increase (revised from 0.4%) in December.

That said, the growing acceptance that the Federal Reserve (Fed) would stick to its hawkish stance amid still-sticky inflation could help limit further USD losses. Apart from this, the increasing likelihood that the Reserve Bank of New Zealand (RBNZ) will deliver a third supersized rate cut later this month might cap the NZD/USD pair.

From a technical perspective, last week’s breakout through the 0.5700 round figure favors bullish traders and supports prospects for a further near-term appreciating move for spot prices. Hence, any corrective pullback might still be seen as a buying opportunity and remain limited ahead of the crucial RNNZ meeting on Wednesday.

• The Indian Rupee trades in negative territory on Monday. 
• Indian economic slowdown, foreign outflows and RBI rate cuts continue to undermine the INR.
• The RBI intervention and lower crude oil prices might cap the downside for local currency. 

The Indian Rupee (INR) weakens on Monday, snapping the two-day winning streak. The sluggish growth in the Indian economy, continued Foreign Institutional Investors (FIIs) outflows, and the Reserve Bank of India (RBI) rate cut dragged the local currency lower against the USD.

Nonetheless, the intervention from the RBI by selling the USD might help limit the INR’s losses. Additionally, the decline in crude oil prices is likely to support the Indian Rupee, as India is the world’s third-largest consumer of crude oil. The Indian Trade Balance will be released later on Monday. On the US front, the Federal Reserve (Fed) Patrick Harker and Michelle Bowman are scheduled to speak. The US market will be closed on Monday in observance of President’s Day.

Indian Rupee remains weak amid sluggish growth, RBI rate cuts

• India’s Wholesale Price Index (WPI) inflation slightly decreased to 2.31% in January from 2.37% in December, softer than the 2.50% expected.
• “A sustained domestic market rally is unlikely since the FIIs continue to be on sell mode. Only a decline in dollar and US bond yields will turn the FIIs into buyers,” said  V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
• US President Donald Trump said last week that Indian Prime Minister Narendra Modi offered to talk about easing tariffs and importing more US oil and gas to shrink the trade deficit between the two countries.
• US Retail Sales declined by 0.9% in January from the 0.7% increase (revised from 0.4%) in December, according to the US Census Bureau on Friday. This figure came in weaker than the market expectation for a decrease of 0.1%.
• Industrial Production increased by 0.5% MoM in January, compared to 1.0% (revised from 0.9%) in December, beating the estimation of a 0.3% rise.

USD/INR maintains a positive tone, further sideways expected in the near term

The Indian Rupee trades softer on the day. Technically, the bullish outlook of the USD/INR pair prevails, characterized by the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline.

The 87.00 psychological level acts as an immediate resistance level for USD/INR. Sustained gains past the mentioned level could allow bulls to set their sights on the next targets at an all-time high near 88.00, en route to 88.50.

On the downside, the initial support level is seen at 86.35, the low of February 12. A breach of this level could send the pair back down to 86.14, the low of January 27.

• USD/CAD attracts some buyers at the start of a new week, though it lacks follow-through.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind for the currency pair. 
• Subdued USD price action holds back bulls from placing aggressive bets around the major.

The USD/CAD pair kicks off the new week on a positive note and reverses a major part of Friday’s slide to mid-1.4100s, or its lowest level since December 12. Spot prices, however, struggle to capitalize on the uptick and remain below the 1.4200 round-figure mark through the Asian session.

Crude Oil prices drop to a nearly two-month low amid hopes for a peace deal between Russia and Ukraine, which, in turn, could end sanctions against Russia and ease global supply disruptions. This is seen undermining the commodity-linked Loonie and turns out to be a key factor lending some support to the USD/CAD pair. That said, reduced bets for another rate cut by the Bank of Canada (BoC) in March help limit the downside for the Canadian Dollar (CAD).

Apart from this, the recent US Dollar (USD) decline further contributes to capping the upside for the USD/CAD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, registered hefty losses last week amid easing worries about the potential economic fallout from US President Donald Trump’s trade tariffs. Trump directed officials on Thursday to formulate plans for reciprocal tariffs, though he stopped short of announcing levies immediately.

Moreover, Friday’s disappointing release of US monthly Retail Sales, which dropped by the most in nearly two years in January, keeps the USD bulls on the defensive. That said, the growing acceptance that the Federal Reserve (Fed) would stick to its hawkish stance amid still-sticky inflation acts as a tailwind for the buck and the USD/CAD pair. The fundamental backdrop, however, warrants caution before positioning for any further gains for the currency pair.