The Australian dollar stabilized around $0.626 on Wednesday, following heightened volatility in recent sessions, as investors continued to weigh the latest comments from US President Donald Trump. Late on Tuesday, Trump revealed that his team was considering a 10% tariff on Chinese imports starting February 1, raising concerns about a potential trade war. Given the close trading ties between Australia and China, any developments affecting China’s economy could have significant implications for Australian markets. Domestically, traders are closely watching next week’s quarterly inflation report, which could provide critical insights into the future direction of local interest rates. Speculation is growing that the Reserve Bank of Australia may begin cutting rates as early as next month.

Australian Dollar Holds Steady

The offshore yuan depreciated past 7.28 per dollar, extending its losses from the previous session, as investors grappled with concerns over U.S. President Donald Trump's trade policies. Late on Tuesday, Trump announced plans to impose an additional 10% tariff on Chinese imports starting February 1, citing that China is supplying fentanyl to Mexico and Canada. While the proposed tariff is significantly lower than the 60% rate Trump had previously threatened, it aligned with the 10% pledge he made as president-elect. The announcement followed a recent phone call between Trump and Chinese President Xi Jinping, during which they discussed trade, fentanyl and other key issues. Earlier in the week, Trump also proposed a 25% tariff on imports from Mexico and Canada, reiterating their roles in enabling undocumented migration and the flow of drugs into the U.S.

Offshore Yuan Falls on Concerns Over Tariff Threats

The New Zealand dollar depreciated to around $0.565 on Wednesday as investors assessed the latest domestic inflation figures. New Zealand’s annual inflation rate held steady at 2% in the fourth quarter of 2024, slightly higher than expected but remained within the Reserve Bank of New Zealand’s target range of 1-3%. On a quarterly basis, the CPI rose by 0.5%, easing slightly from a 0.6% increase in the previous period. The data suggested that price pressures remained largely contained, reinforcing expectations for a 50-bps rate cut at the central bank’s meeting in February. Additionally, U.S. President Donald Trump’s plan of imposing a 10% tariff on Chinese-made goods starting February 1st further weighed on the Kiwi dollar, given China is New Zealand’s largest trading partner.

New Zealand Dollar Weakens After Inflation Data

The Japanese yen steadied around 155.6 per dollar on Wednesday, pausing its recent rally which was fueled by expectations that the Bank of Japan would raise interest rates this week following hawkish remarks from central bank officials. A rate hike would lift Japan’s short-term borrowing costs to 0.5%, the highest level since the 2008 global financial crisis. BOJ Governor Ueda recently indicated that the central bank would consider raising rates if the economy continues to perform well, while Deputy Governor Himino stated that it would be unusual for real interest rates to remain negative once Japan has moved past deflationary pressures. Meanwhile, traders continued to monitor the latest comments from US President Donald Trump, who threatened tariffs on China, Mexico, Canada, and the EU, heightening risks of a global trade war.

Japanese Yen Stabilizes Ahead of BOJ Meeting

The South Korean won tumbled past 1,430 per dollar, reversing gains from the previous session, as traders assessed concerns over US President Donald Trump’s trade policies. Trump announced late Tuesday that his administration is considering a 10% tariff on Chinese imports starting February 1, impacting South Korea’s largest trading partner, while Mexico and Canada are set to face 25% levies on the same day. Subsequently, South Korea's acting president Choi Sang-mok pledged to review response measures to Trump's proposed tariffs, while the Industry Ministry met with businesses Wednesday to address US export risks and brief exporters on trade policies. In economic news, South Korea’s consumer confidence edged up to 91.2 in January 2025 from 88.2 in December, reflecting a modest improvement in economic sentiment. Investors are now looking ahead to upcoming economic releases, including business confidence figures and advance estimates for Q4 GDP.

SK Won Tumbles on Trump Tariff Threat

The dollar index held around 108.1 on Wednesday, holding a recent decline amid lingering uncertainty on US President Donald Trump’s tariff plans. Trump indicated on Tuesday that he is considering a 10% tariff on goods imported from China, set to begin on February 1, just one day after threatening Mexico and Canada with tariffs of approximately 25%. However, none of these threats have been turned into policy yet, fueling hopes that the administration may take a more cautious approach to tariffs, which could help mitigate inflation risks. The dollar has been on an upward trajectory since October, driven by concerns that Trump’s "America First" policies and pro-growth stance might lead to higher inflation, potentially preventing the Federal Reserve from implementing further rate cuts. Despite this, markets still expect the Fed to lower rates by July, with the possibility of another reduction later in the year.

Dollar Subdued on Trump Tariff Uncertainty

The Brazilian real weakened past 6.05 per USD, retreating from a one-month high of 6.01 reached on January 15th, as heightened uncertainty stemming from U.S. President Trump’s executive orders dampened emerging market sentiment. Proposals for tariffs on Mexico, Canada, and the EU spurred risk aversion, weighing heavily on currencies like the real. Meanwhile, Trump’s emphasis on boosting U.S. oil production and the lack of specific trade actions against China pressured commodity prices, eroding Brazil’s foreign currency inflows. Domestically, fiscal concerns persist despite President Lula’s efforts to enhance ministerial oversight and signal fiscal prudence. Investor skepticism about structural reforms, combined with inflationary pressures and softer commodity markets, has amplified capital outflows, further weakening the real.

Brazilian Real Retreats

The Canadian dollar weakened sharply past 1.44 per USD, approaching the nine-year low of 1.45 touched on January 17th, as U.S. President Trump’s initial executive orders cast a shadow over Canadian foreign exchange inflows. Trump announced plans to impose tariffs of up to 25% on Canada by February 1st, citing illegal border crossings as justification. These tariffs are expected to significantly curtail demand from Canada’s largest export destination, further straining dollar inflows. Adding to the pressure, Trump’s emphasis on bolstering U.S. domestic energy production threatens to undercut Canadian energy exports by forcing producers to lower selling prices. On the domestic front, inflationary pressures eased, with headline inflation slipping to 1.8% in December, below the anticipated 1.9%. Additionally, the Bank of Canada’s preferred inflation measure aligned with forecasts at 2.5%, reinforcing market expectations of further rate cuts this year to counter mounting growth concerns.

Canadian Dollar Extends Decline After Inflation Data

The euro traded near $1.03, close to its late 2022 lows, as dollar strength persisted after Donald Trump was sworn in as US President. While Trump refrained from imposing tariffs immediately following his inauguration, he later announced plans to introduce tariffs of up to 25% on Mexico and Canada starting February 1st. This renewed concerns about trade tensions and potential inflationary pressures. Meanwhile in Europe, ECB policymakers have been advocating for caution regarding further rate reductions. Eurozone inflation rose for the third consecutive month to 2.4% in December, though this increase was largely expected due to favourable base effects from the previous year. The ECB, which has already cut rates four times since June, is likely to maintain its easing trajectory over the next six months. Markets currently anticipate a 25bpst reduction in the key deposit rate at the ECB's upcoming meeting next week.

Euro Holds Close to 2022-Lows

The Canadian dollar weakened sharply past 1.44 per USD, approaching the nine-year high of 1.45 touched on January 17th after the first portion of executive orders by US President Trump pressured the outlook for Canadian foreign exchange inflows. The US President signaled that his team will impose tariffs of up to 25% on Canada by February 1st, justifying the measure a response for large influx of illegal border crossing. The move would significantly dent demand from Canada’s largest export destination, thus pressuring the outlook of dollar inflows into Canada. Foreign exchange flows were also dented by Trump’s goal to raise domestic energy production, magnifying the impact that tariffs would have on Canada’s heavyweight energy exports to the US, forcing Canadian energy producers to drop selling prices. Meanwhile, markets expect the Bank of Canada to deliver further rate cuts this year to counter growth concerns.

Canadian Dollar Approaches 9-Year Low on Tariff Threats

The Mexican peso weakened past 20.7 per USD, approaching the over three-year low of 20.85 tested repeatedly since the start of the year after US President Donald Trump signaled that the US will impose tariffs on Mexico. While answering press questions over the signing of executive orders, the freshly-inaugurated President verbally signaled his administration is planning to impose tariffs of up to 25% on Mexico as of February 1st, citing the measures as reprimand for loose border control between both countries. Such policy would significantly impact the inflows of foreign exchange into Mexico from its biggest trading partner. The move also pressures the peso by removing a large source of demand for Mexican manufacturing, particularly in the auto sector, potentially forcing the Bank of Mexico to expedite rate cuts. Slowing investment, industrial output, and inflation in Mexico have already raised expectations of multiple rate cuts by Banxico this year.

Mexican Peso Approaches Record Low on Tariff Threats

The British pound weakened to approximately $1.22, weighed down by a stronger dollar as Donald Trump was sworn in as President of the United States, reigniting concerns over tariffs. In the UK, wage growth accelerated to a six-month high in the three months leading up to November, in line with expectations. However, the unemployment rate unexpectedly rose to 4.4%, accompanied by the sharpest drop in payroll numbers since November 2020, indicating potential softening in the labor market. Additionally, last week’s data revealed an unexpected slowdown in inflation and weaker-than-anticipated economic growth. Against this backdrop, the Bank of England is widely expected to reduce the key interest rate by 25 basis points to 4.5% next month.

British Pound Weakens

The offshore yuan weakened to around 7.28 per dollar, reversing a strong 1.1% gain from the previous session, as the US dollar rebounded following news of President Trump’s trade policies. During his inaugural address, President Trump proposed 25% tariffs on Mexico and Canada and hinted at stricter tariffs on China. He stated that tariffs on China might depend on a deal regarding TikTok's ownership, while also extending TikTok’s US operations for 75 days. Meanwhile, the yuan found support in hopes of potential US-China negotiations, as Trump reportedly expressed interest in traveling to China after taking office. Additionally, President Xi Jinping urged policymakers to implement more proactive macroeconomic policies this year to sustain growth momentum. The People's Bank of China kept its key lending rates unchanged in January, maintaining the one-year Loan Prime Rate (LPR) at 3.1% and the five-year LPR at 3.6% to support economic stability amid external uncertainties.

Offshore Yuan Slips on Trump Tariff Threats

Bitcoin retreated toward $100,000 on Tuesday, after reaching a record high of over $109,000 in the previous session, as volatility persists following Donald Trump’s inauguration as the 47th President of the United States. Investors are awaiting an executive order from Trump designating crypto assets as a “national priority,” though it has yet to be issued. Trump is also expected to establish a cryptocurrency advisory council and ramp up deregulation to support the sector. In a significant move, Trump introduced his own digital token over the weekend, trading under the "Trump" ticker on the Solana blockchain. Melania Trump also joined the crypto wave, launching her own memecoin, further underscoring the administration's growing involvement in the cryptocurrency space.

Bitcoin Retreats from Record Highs

The South Korean won stabilized around 1,435 per dollar, following a solid 1.3% gain in the previous session, as markets continued to assess the announcement of President Trump’s trade policies. On Monday, Trump unveiled plans for potential 25% tariffs on Mexico and Canada by February 1, reiterating their roles in enabling undocumented migration and the flow of drugs into the U.S. At the same time, he hinted at stricter tariffs targeting China, South Korea’s largest trading partner, but refrained from introducing specific measures. Meanwhile, in South Korea, economic data revealed that producer inflation rose to a five-month high of 1.7% year-on-year in December 2024, up from 1.4% the previous month.

South Korean Won Stabilizes Amid Trump Trade Policies

The Japanese yen strengthened past 155 per dollar on Tuesday, reaching a one-month high amid bets that the Bank of Japan would raise interest rates this week following hawkish comments from central bank officials. That would lift Japan’s short-term borrowing costs to 0.5%, the highest since the 2008 global financial crisis. The BOJ is also likely to revise its inflation forecast higher, with growing optimism that rising wages will help Japan stay on track to meet the BOJ’s 2% inflation target sustainably. Additionally, Japan's Finance Minister, Katsunobu Kato, recently reaffirmed the government's commitment to taking "appropriate action" to support the yen, which further bolstered the currency. Meanwhile, traders continued to assess U.S. President Trump’s first day in office, which included signing multiple executive orders and discussing potential tariff plans with the press.

Japanese Yen Hits 1-Month on BOJ Hike Bets

The New Zealand dollar weakened to around $0.566 on Tuesday, reversing a strong 1.6% gain from the previous session, weighed down by a rebound in the US dollar following news of President Trump’s trade policies. On Monday, Trump signaled an intensified focus on trade by announcing plans to consider 25% tariffs on Mexico and Canada as early as February. He also suggested through social media the possibility of stricter tariffs on China, New Zealand’s largest trading partner. Domestically, investors are anticipating Wednesday’s CPI data, with the annual inflation rate expected to ease to its lowest level since 2021. Markets continue to price in an 80% chance that the Reserve Bank of New Zealand will lower its cash rate to 3.75% next month. On the economic data front, New Zealand’s BusinessNZ performance of services index fell to 47.9 in December, marking a 1.2-point drop from November and the tenth consecutive month of contraction.

New Zealand Dollar Weakens

The Australian dollar dropped as much as 1% to $0.621 on Tuesday, reversing gains from the previous session after US President Donald Trump indicated that he was considering imposing a 25% tariff on Canada and Mexico as early as February 1. He then mentioned China in his comments, but provided no specifics. The prospect of additional U.S. tariffs is expected to have a ripple effect on China’s export-driven economy, which could, in turn, negatively impact major trading partners like Australia. Domestically, traders are keeping a close eye on next week’s quarterly inflation report, which may provide crucial insights into the future direction of local interest rates. Speculation is mounting that the Reserve Bank of Australia could begin cutting rates as soon as next month.

Aussie Dollar Tumbles on Trump Tariff Threats

The dollar index rose to approximately 108.5 on Tuesday, recovering some of the losses from the previous session after US President Donald Trump stated he was considering 25% tariffs on Canada and Mexico as early as Feb. 1, citing concerns over illegal immigration at the US border. Trump also mentioned China but did not provide further details. The dollar has been gaining momentum since October, driven in part by concerns that Trump’s "America First" policies and pro-growth stance could spur inflation, which in turn might prevent the Federal Reserve from further rate cuts. However, signs of cooling US inflation have increased expectations for a more dovish Fed policy, with markets now pricing in two 25 basis point rate cuts this year. The dollar strengthened broadly, with the Canadian dollar and Mexican peso facing the largest declines.

Dollar Rebounds on Tariff Concerns

The dollar index held its afternoon decline and fell nearly 1% to below 108.5 on Monday after Donald Trump was inaugurated as US President and delivered his opening speech. The President delivered a series of executive orders during the speech but refrained from making concrete changes to US trade policy. The dollar had declined sharply earlier in the session as reports indicated that no tariffs were expected to be imposed on Trump’s first day in office, contrary to initial pledges. Besides limiting the extent of capital outflows in the US, tariffs are also expected to lift domestic prices and force the Fed to prolong its hawkish policy stance this year. With US stock and bond markets closed for the Martin Luther King Jr. holiday, the reaction has been most evident in the forex market. The dollar weakened broadly, with the sharpest losses against the euro, Australian dollar, and Canadian dollar.

US Dollar Holds Pulback

The Brazilian real strengthened past 6.05 per USD, approaching its one-month high of 6.01 on January 15th, driven by the central bank’s intervention in the foreign exchange market and relief from the news that U.S. President-elect Donald Trump will not impose aggressive tariffs immediately upon taking office. The central bank’s intervention, through two line auctions totaling USD 2 billion, provided liquidity and helped stabilize the currency, the first such move under the new president, Gabriel Galípolo. Additionally, market sentiment improved as reports indicated Trump would refrain from implementing aggressive tariffs on his first day, alleviating concerns over inflationary pressures and the possibility of high interest rates in the U.S., which in turn weakened the dollar.

Brazilian Real Strengthens as Central Bank Intervenes and Trump Eases Tariff Concerns

The Mexican peso strengthened past 20.50 per U.S. dollar, recovering from a dip near its March 2022 low of 20.85 seen on December 31st, fueled by a weakening U.S. dollar, as traders braced for a series of policy announcements following Donald Trump’s inauguration. Markets are closely monitoring his proposals to raise tariffs, tighten immigration, reduce taxes, and intensify deregulation, measures expected to exert inflationary pressures. Additionally, China’s 5% GDP growth in 2024 has bolstered global sentiment, fostering a stronger risk appetite. The revival of the EU-Mexico free trade agreement ahead of Trump’s inauguration has also contributed to optimism. Despite these positive developments, concerns linger over Mexico’s economic outlook, as both the IMF and the World Bank have lowered their 2025 growth forecasts, citing political risks from the U.S. and domestic uncertainties.

Mexican Peso Recovers Ahead of U.S. Presidential Inauguration

The Canadian dollar strengthened by over 1%, reaching 1.42 per USD, its highest level in about a month, following news that US President Donald Trump plans to direct federal agencies to study trade relations with China and neighboring countries without imposing new tariffs on his first day in office. The announcement provided temporary relief to markets, which had braced for immediate tariff measures from the new administration. Meanwhile, the Bank of Canada's dovish stance, with another 25 bps rate cut anticipated this month, contrasts with the Federal Reserve's relatively hawkish policy. This divergence has widened the yield gap between US and Canadian government bonds, attracting capital flows toward the US dollar and keeping pressure on the Loonie. Earlier this month, the Canadian dollar hit its weakest level since 2016 due to these dynamics.

Loonie Strengthens After US Tariff News

The South African rand appreciated nearly 1% to around 18.5 per USD, its highest since late December 2024, in line with other emerging economies, driven by a weaker dollar ahead of Donald Trump’s upcoming inauguration and key policy announcements. Trump’s second term is expected to reshape the global economy, with trade tariffs, tax cuts, and a stronger dollar influencing inflation and interest rates. Domestically, traders are anticipating a 25 bps rate cut this month, with markets pricing in only one cut for the year as they adjust to the Fed’s cautious approach amid uncertainties surrounding the new U.S. administration. Consumer inflation eased more than expected in the latter months of 2024, falling to 2.9%, below the SARB’s 3%-6% target range. South Africa’s economic recovery in 2025 remains fragile but promising, with structural challenges persisting, though recent reports show cautious optimism driven by progress in key sectors, including manufacturing, mining, and services.

South African Rand Firmer

USDCAD decreased to a 4-week low of 1.43. Over the past 4 weeks, US Dollar Canadian Dollar lost 0.61%, and in the last 12 months, it increased 5.97%.

Canadian Dollar Hits 4-week High

The dollar index extended its decline, dropping about 1% to 108.3 on Monday, following a WSJ report indicating that the President plans to instruct federal agencies to review trade policies and evaluate the United States' trade relationships with China and its continental neighbors. However, contrary to initial concerns, no new tariffs are expected to be imposed on his first day in office. The dollar was already under pressure earlier in the session as markets awaited insights from Trump's speech and potential executive orders, particularly on trade. With US stock and bond markets closed for the Martin Luther King Jr. holiday, the reaction has been most evident in the forex market. The dollar weakened broadly, with the sharpest losses against the euro, Australian dollar, and Canadian dollar.

Dollar Softens on Tariff News

USDCNY decreased to a 4-week low of 7.29. Over the past 4 weeks, US Dollar Chinese Yuan lost 0.2%, and in the last 12 months, it increased 1.39%.

Chinese Yuan Hits 4-week High

USDKRW decreased to a 4-week low of 1444.00. Over the past 4 weeks, US Dollar South Korean Won lost 0.01%, and in the last 12 months, it increased 7.87%.

South Korean Won Hits 4-week High

The Indian rupee held near the record low of 86.6 per USD mark in January as slower growth increased calls for softer monetary policy by the RBI, accelerating capital outflows and pressured the sustainability of the central bank’s crawling peg. Evidence of a sharp slowdown to India’s economic growth reversed the previous consensus that it would outperform major emerging economies, driving investors to close positions on Indian capital markets and pivot to competing Asian assets. This was magnified by expectations that the RBI is due to commence its cutting cycle before the end of the financial year amid lower inflation and a sharp drop in GDP growth. The latest data indicated that inflation slowed to 5.2% in December, and the preliminary FY2025 GDP slowed to 6.4%, the lowest since FY2020 when excluding pandemic shocks. To add, the rapid deterioration in foreign exchange reserves raised speculation that the RBI may be forced to start relaxing its support for the currency.

Indian Rupee Holds at Record Low

The euro traded near $1.03, close to its late 2022 lows, as dollar strength persisted on expectations that the Fed will implement fewer rate cuts this year and rising inflation concerns linked to Trump’s anticipated policies. Meanwhile, in Europe, ECB policymakers have been advocating for caution regarding further rate reductions. Robert Holzmann stated that a January rate cut by the ECB is "not a foregone conclusion for me at all," while Joachim Nagel emphasized that the ECB should avoid rushing into rate cuts due to persistently high inflation and significant uncertainty. Eurozone inflation rose for the third consecutive month to 2.4% in December, though this increase was largely expected due to favourable base effects from the previous year. The ECB, which has already cut rates four times since June, is likely to maintain its easing trajectory over the next six months. Markets currently anticipate a 25bpst reduction in the key deposit rate at the ECB's upcoming meeting next week.

Euro Remains Subdued

The Japanese yen strengthened past 156 per dollar on Monday, extending last week’s gains as investors prepared for the Bank of Japan’s upcoming policy decision. BOJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino suggested the possibility of a rate hike at this week’s meeting, supported by strong inflation and wage data. Additionally, Japan’s Finance Minister Katsunobu Kato reiterated the government’s commitment to taking "appropriate action" to support the yen, further bolstering the currency. On the data front, Japan’s machinery orders rose 3.4% month-on-month in November, defying market expectations of a 0.4% decline and marking the strongest growth in nine months. Externally, the yen also benefited from a pullback in the US dollar ahead of Donald Trump’s inauguration, as traders awaited more clarity on his proposed policies.

Japanese Yen Edges Higher as BOJ Meeting Looms

The offshore yuan strengthened to 7.32 per dollar, reaching its highest level in three weeks, as the People's Bank of China kept key lending rates unchanged in January, as expected. On Monday, the central bank kept the 1-year LPR at 3.1% serving as benchmarks for corporate and most household loans, while the 5-year LPR at 3.6% for mortgage loans. The decision comes ahead of Trump’s Monday inauguration, with the yuan down over 3% since his November election victory, underscoring trade policy uncertainties.  Trump has threatened tariffs of up to 60% on Chinese imports during his second term starting Monday, though reports suggest a gradual rollout. Meanwhile, latest data showed China's GDP grew 5.4% year-on-year in Q4 2024, surpassing expectations and pushing full-year growth to 5%, while industrial production, retail sales, and new home prices showed improvement from recent stimulus measures. However, the unemployment rate rose slightly to 5.1% in December, a three-month high.

Offshore Yuan Strengthens After PBOC Decision

The New Zealand dollar rose to around $0.560 on Monday after two consecutive sessions of losses, supported by a softer US dollar as investors awaited policy announcements ahead of President-elect Donald Trump’s inauguration. The Kiwi also gained some support from China’s decision to leave its loan prime rates unchanged. However, the currency remained on the defensive, as Trump’s potential tariff policies including China could weigh on the Kiwi, given that China is New Zealand’s largest trading partner. Additionally, markets are pricing in an 80% chance of a cash rate cut by the Reserve Bank of New Zealand from 4.25% to 3.75% next month. Projections suggest further rate reductions, with rates expected to decline to between 3.0% and 3.25% by the end of the year.

Kiwi Gains as US Dollar Softens

The Australian dollar rose above $0.62 on Monday, reversing a two-day decline, as stronger commodity prices and a broader risk-on sentiment provided support. The Aussie also benefited from a pullback in the US dollar ahead of Donald Trump’s inauguration, with traders awaiting more clarity on his proposed policies. Additionally, a positive phone call between Trump and Chinese President Xi Jinping on Friday raised hopes for reduced US-China tensions. Domestically, traders are closely watching next week’s quarterly inflation report for insights into the future direction of local interest rates. Markets are speculating that the Reserve Bank of Australia may begin cutting rates as soon as next month.

Australian Dollar Strengthens on Commodities Boost

The South Korean won rose to around 1,451 per dollar as investors closely monitored President-elect Donald Trump's return to the White House, with his inauguration looming. Investors were eager to gauge his immediate policy agenda, particularly his plans to raise tariffs, tighten immigration, lower taxes, and ramp up deregulation, measures expected to exert inflationary pressure. Meanwhile, in South Korea, the arrest of impeached President Yoon Suk Yeol last week provided support to the won, as the potential for political stabilization buoyed sentiment. In monetary policy news, the Bank of Korea unexpectedly kept its key interest rate steady at 3% in January 2025, defying expectations of a 25bps cut. The move reflected efforts to stabilize the weakening currency amidst a strong U.S. dollar and domestic political uncertainty. Investors are now turning their attention to South Korea's upcoming economic releases, including producer inflation figures and advance estimates for Q4 GDP.

South Korean Won Gains as Trump Inauguration Looms

The dollar weakened against major currencies on Monday as traders prepared for a series of policy announcements in the wake of Donald Trump’s inauguration. Markets are focusing on his plans to raise tariffs, tighten immigration, lower taxes, and ramp up deregulation, which are expected to have inflationary effects. However, trading volumes are anticipated to remain subdued throughout the session, as US markets are closed for the Martin Luther King Jr. holiday. Last week, the dollar index ended a six-week winning streak after a surprise slowdown in US core inflation, coupled with weaker-than-expected producer price index and retail sales data, fueled speculation of further Federal Reserve interest rate cuts this year. Currently, markets are pricing in a total of 42 basis points of easing for 2025. The dollar saw broad weakness, with the most significant declines against the New Zealand and Australian dollars.

Dollar Eases as Trump’s Second Term Approaches

USDCAD increased to a near 5-year high of 1.45. Over the past 4 weeks, US Dollar Canadian Dollar gained 0.12%, and in the last 12 months, it increased 7.27%.

Canadian Dollar Hits Near 5-year Low

USDCAD increased to a 4-week high of 1.45. Over the past 4 weeks, US Dollar Canadian Dollar gained 0.11%, and in the last 12 months, it increased 7.25%.

Canadian Dollar Hits 4-week Low

The dollar index rose slightly to 109.1 on Friday but remains on track for a 0.8% decline this week, snapping a six-week winning streak. Despite strong economic data highlighting the resilience of the US economy, investors found some relief in signals that the Fed may still have room to ease borrowing costs. A surprising slowdown in the annual core inflation rate, alongside softer-than-expected PPI and retail sales figures, fuelled these expectations. Nevertheless, the greenback hovers near November 2022 highs, as markets price about 43bpd of rate cuts rate this year. Traders are now turning their attention to Donald Trump’s inauguration for clues on policy shifts under the incoming administration. The dollar saw its strongest gains against the British pound, the Australian dollar, and the Japanese yen.

Dollar Edges Higher on Friday But is Still On Track For Weekly Decline

USDMXN increased to a 30-month high of 20.91. Over the past 4 weeks, US Dollar Mexican Peso gained 2.6%, and in the last 12 months, it increased 21.89%.

Mexican Peso Hits 30-month Low

The British pound dropped below $1.22, nearing its lowest level since late 2023, after disappointing retail sales data raised expectations for a Bank of England interest rate cut. Official figures showed retail sales unexpectedly fell by 0.3% in December, reversing a small gain in November and missing forecasts of a 0.4% rise. Adding to the weak economic outlook, GDP growth for November was just 0.1%, falling short of expectations, while growth for the three months to November stalled entirely. The economy now risks stagnating for a second consecutive quarter unless December sees at least 0.07% growth. Inflation also dropped to 2.5% in December, aligning with BoE forecasts but surprising markets expecting 2.6%. Concerns over the UK’s rising debt and challenges in meeting budget targets have added to pressure on financial markets, particularly bonds.

Sterling Weakens after Retail Data

The South Korean won remained steady around 1,455 per dollar, as traders continued to weigh the Bank of Korea’s latest monetary policy decision. The central bank unexpectedly kept its key rate at 3% in January 2025, defying expectations of a 25-basis-point cut, aiming to stabilize the weakening currency amid a strong US dollar and political turmoil. Meanwhile, the arrest of impeached President Yoon Suk Yeol has offered slight support to the won, with potential for political stabilization. Externally, the won gained against the weaker US dollar, as cooling US inflation fueled bets of additional Fed rate cuts this year. In economic news, South Korea's 2024-2025 growth outlook was downgraded amid political uncertainty and trade risks, though recovery is expected in late 2025. Investors now look ahead to the latest BOK minutes and a slew of economic releases next week, including producer inflation data, consumer, and business confidence figures.

South Korean Won Holds Steady

The New Zealand dollar held steady at $0.56 on Friday, on track for its first weekly gain in seven. The currency found support from a softer U.S. dollar after recent economic data, particularly cooler-than-expected core inflation data and weak retail sales figures, reignited hopes that the Federal Reserve will be able to cut rates more than once this year. Meanwhile, stronger-than-expected economic growth in China, New Zealand’s largest trading partner, had little impact on the Kiwi dollar. In domestic news, the BusinessNZ PMI revealed that the country's manufacturing activity rose slightly in December (45.9 vs 45.2 in November), although the sector remained in contraction for the 22nd consecutive month. For the week, the New Zealand dollar has gained about 1%, rebounding from two-year lows.

Kiwi Dollar Heads for First Weekly Gain in Seven

The Australian dollar held steady around $0.621 on Friday, on track for its first weekly gain in seven, supported mainly by a retreat in the US dollar. Cooling US inflation has spurred expectations of further Federal Reserve rate cuts this year. Additionally, stronger-than-expected economic growth in China during the fourth quarter has improved the outlook for Australia’s largest trading partner. Domestically, investors continued to assess the Reserve Bank of Australia’s monetary policy stance following the release of robust employment figures, while awaiting the latest inflation data. Markets are currently pricing in a 70% probability that the RBA will cut its 4.35% cash rate by 25 basis points next month, with an additional rate cut in April already fully priced in.

Aussie Dollar Poised for First Weekly Gain in Seven

The offshore yuan rose to around 7.33 per dollar as investors reacted to stronger-than-expected data from China. On Friday, reports showed that GDP grew by 5.4% year-on-year in Q4 2024, beating market expectations of 5% and up from 4.6% in Q3. The annual growth reached 5%, aligning with Beijing's target of "around 5%." Industrial production also rose by 6.2% year-on-year in December 2024, compared to market expectations and prior month's 5.4% gain. Similarly, retail sales grew by 3.7% year-on-year, surpassing the forecasted 3.5% and accelerating from 3% in November. Meanwhile, new home prices in 70 cities fell 5.3% year-on-year in December, the smallest drop since August and better than November's 5.7% decline. These unexpectedly robust economic figures reflected the impact of a series of stimulus measures introduced since September to support the overall economic recovery. However, China's unemployment rate edged higher to a three-month high of 5.1% from 5% in November.

Offshore Yuan Rises on Strong China Data

The Japanese yen held its recent advance to around 155.3 per dollar on Friday and was on track for its strongest week since late November, bolstered by growing speculation that the Bank of Japan could raise interest rates again next week. BOJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino signaled the possibility of a rate hike at the upcoming meeting, with strong inflation and wage data providing support for this outlook. Ueda also expressed increasing confidence in wage growth, citing positive feedback from various industries. Additionally, Japan’s Finance Minister Katsunobu Kato reaffirmed that the government would take "appropriate action" to support the yen, which helped further strengthen the currency. On the international front, the yen gained against the dollar as cooling US inflation fueled expectations of additional Federal Reserve rate cuts this year.

Yen Set for Weekly Gain on Hawkish BOJ Bets

The dollar index held below 109 on Friday and was set for its first weekly decline in seven, coming under pressure this week as a surprise decline in US core inflation boosted bets on further Federal Reserve interest rate cuts this year. Fed Governor Christopher Waller added to the sentiment on Thursday, suggesting that three or four rate reductions are still possible if economic data continues to weaken. Additionally, December’s US retail sales data came in below expectations, although it still indicated strong consumer spending. Markets are now pricing in 41 basis points of total easing from the Fed this year, up from the 27 basis points seen earlier this month. The dollar weakened across the board this week, with the most notable depreciation against the yen, driven by increasing speculation that the Bank of Japan may raise rates next week.

Dollar Set for First Weekly Decline in Seven

The Mexican peso weakened past 20.8 per U.S. dollar, nearing its March 2022 low of 20.85 seen December 31st, as investors braced for US President-elect Donald Trump’s inauguration. Speculation surrounding Trump’s policies, including potential tariffs and a tougher stance on immigration, has generated uncertainty, dampening the demand outlook for the peso. Domestically, Mexico's economic indicators have provided little support; although October’s Gross Fixed Investment showed a modest uptick, it remains well below past highs, signaling sluggish economic momentum. Meanwhile, despite Federal Reserve Governor Waller suggesting the possibility of more aggressive rate cuts, the Bank of Mexico is expected to reduce rates more swiftly by as much as 200 basis points in 2025, narrowing the interest rate differential and dampening the appeal of carry trades.

Mexican Peso Near March 2022 Lows

The Canadian dollar weakened toward 1.44 per USD, approaching the January 2016 low of 1.445, driven by diverging monetary policies, weak domestic data, and geopolitical uncertainties. The Bank of Canada's aggressive rate cuts, with a 25 bps reduction expected this month, contrast with a less dovish Federal Reserve, contributing to a widening yield gap between US and Canadian government bonds that draws capital toward the greenback, intensifying pressure on the loonie. Domestically, a sharper-than-expected 13.35% drop in December housing starts signals economic softness. Meanwhile oil prices, losing momentum after their recent rise, weigh on Canada's export revenue and dampen demand for the currency. Additionally, fears of significant US tariffs under the incoming Trump administration heighten trade uncertainty, threatening both economic growth and inflation stability.

Canadian Dollar Eases Toward 1.44 USD

The Brazilian real weakened to 6.04 per USD, retreating from a one-month high of 6.01 on January 15, as fiscal concerns continue to weigh on the currency. While the latest Prisma Fiscal report projects improved deficit and public debt ratios for 2025 and 2026, skepticism persists regarding the government’s ability to maintain its fiscal framework. High borrowing costs intensify debt servicing pressures, further undermining confidence. Adding to uncertainty, the revocation of financial monitoring measures and delays in implementing tax reforms cloud Brazil’s economic outlook. Additionally, historically high interest rates, once supportive of the real, now offer diminishing returns as fiscal risks erode investor sentiment. Economic fragility compounds these challenges, with November’s 0.9% contraction in the services sector, the sharpest monthly drop since April 2023, highlighting vulnerabilities in Brazil's primary growth driver.

Breaking News

Follow what's happening with real-time updates from around the world.