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05.10.2022: USD climbs across board; outlook for USDX, USD/JPY, AUD/USD, NZD/USD

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As we mentioned yesterday, the RBA’s rate decision significantly impacted markets. The central bank decided to hike the rate less aggressively by only 25 basis points, catching off guard traders. They had expected a 50 basis point increase.


There are many signs that inflation is declining in the US. For example, the ISM Manufacturing Index report was rather weak and there was a larger than expected drop in the Job Openings.

So, tighter monetary policy has begun to cool demand and the labor market. This is why investors suppose that the Fed may also start to hike rates less aggressively.

However, some of these hopes waned today following the news from New Zealand. Speculators believed that New Zealand could also switch to less aggressive rate hikes. However, it did not happen. The central bank raised the key rate by 50 basis points.

Moreover, New Zealand has somewhat dampened hopes for a slowdown in monetary tightening worldwide given that the main priority of many central banks is to tame inflation. Fed Governor Philip Jefferson said reducing inflation was the Fed’s top priority. He also acknowledged that the central bank's intent to slow economic growth may cause economic "pain".

These remarks affected market sentiment. Opinions are polarized. Some traders suppose the stock market has already bottomed out. Others think that the recovery will be short-lived. According to the FedWatch Tool, 68% of traders see the chance of a 75 basis point rate hike at the November meeting.


While investors had been trying to recoup some of their losses on Monday and Tuesday, the US dollar index sank to 110.

After reaching a record high above 114 last week, the US dollar depreciated by 4% versus its main rivals during the last two sessions. Demand for the safe haven dollar also fell as the UK government abandoned its plans to scrap the 45p rate of income tax for higher earners.

However, the pound sterling is now losing steam as New Zealand’s regulator remains committed to a hawkish stance. It helped the US currency regain momentum.

Many analysts are optimistic about the prospects of the US dollar. This is why traders may open long positions on the greenback taking advantage of a slight retreat at the start of this week. In the Asian session, the US dollar climbed to 110.60, consolidating in the bullish corridor of 110.09-110.82.

Fluctuations in the US dollar and the US government bond yields serve as indicators of market expectations of a softer stance. This is rather crucial for the yen, which has been rapidly declining due to the BoJ’s ultra-loose stance.

Today, the yen faced bearish pressure again. The greenback managed to rebound after a short-term weakness. The 10-year and 2-year government bond yields rose to 3.6% and 4%, respectively.

The dollar/yen was hovering near 145 again. It is trading today at 144.33, moving in the upward channel of 143.50-144.56.

The Australian dollar also tumbled following an increase in the US currency. It is unable to recover even amid rising oil prices. The RBA’s less aggressive rate hike has sent the Aussie to the bench of the outsiders where the yen has already been for a long time. So now, the trajectory of the AUD/USD pair will mainly depend on the greenback's moves and the Fed’s rate decisions.

Today, the pair is trading in the range of 0.6471–0.6528. In the Asian session, it approached 0.6485. The quotes are likely to drop lower. The outlook for the Australian currency is bearish.

The New Zealand dollar managed to retain momentum. Even though the kiwi is trading choppily following today's rate decision by the Reserve Bank of New Zealand, it still maintains bullish momentum.

As the US dollar regained ground, the NZD/USD pair tested the support level of 0.5720. In the Asian session, it was moving in the upward corridor of 0.5709-0.5806. The pair has already grown to 0.5737.


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00:00 INTRO
00:26 Reserve Bank of Australia
01:41 CME FEDWATCH TOOL
02:51 USDX
03:58 USD/JPY
04:42 AUD/USD
05:30 NZD/USD
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