Market sentiment stays positive despite ongoing uncertainty over US President Trump's trade tariffs. This could be linked to Trump’s hesitation to activate the restrictions and his willingness to negotiate with trade partners. Alongside easing trade concerns, discussions about China’s stimulus measures and reduced geopolitical risks between Russia and Ukraine help keep the mood upbeat and challenge the US Dollar’s recent gains.
China's state planner, the National Development and Reform Commission of the People's Republic of China (NDRC), is speeding up the implementation of laws to promote the private economy. President Xi Jinping is also pushing for the growth of the private sector. Meanwhile, Russia's release of another American prisoner has raised hopes for a peace deal with Ukraine, supported by the US.
In other news, the Reserve Bank of Australia (RBA) cut rates for the first time since November 2020, weakening the Australian Dollar and allowing the US Dollar to rise. However, a shift in the tone of US Federal Reserve officials, becoming more dovish, puts pressure on the Dollar’s corrective bounce after a three-day fall as US markets return following the long weekend.
While the US Dollar’s rebound pauses the previous gains of major currencies and Antipodeans, Gold and Crude Oil are still holding up, driven by cautious optimism and uncertainty over the Fed's stance for 2025. Cryptocurrencies face ongoing pressure, while Asia-Pacific stocks drift lower.
The US Dollar Index (DXY) ended a three-day losing streak early Tuesday, bouncing off a two-month low. The Dollar's recovery challenged recent gains in the Euro (EUR), British Pound (GBP), and Japanese Yen (JPY), despite little change in the fundamentals from Europe, the UK, and Japan. EURUSD saw its biggest drop in six days, following a Doji candlestick pattern, while GBPUSD ended a three-day winning streak. USDJPY rebounded from a one-week low, marking its first gain in four days.
European Central Bank (ECB) officials continue to favor a March rate cut, but growing optimism around a Ukraine-Russia peace deal is keeping EURUSD sellers cautious. Similarly, Japan's outlook hints at further rate hikes from the Bank of Japan (BoJ), challenging USDJPY bulls. Meanwhile, the mixed UK employment data, Bank of England (BoE) Governor Andrew Bailey's recent speech reflecting a loss of optimism and mixed statements from UK Prime Minister Keir Starmer keep GBPUSD sellers hopeful.
AUDUSD bulls pause at a two-month high, ending a three-day winning streak after the RBA’s widely expected 0.25% rate cut, its first since November 2020. RBA Governor Michele Bullock stated that the policy is still in restrictive territory, hinting at potential further rate cuts. However, she also noted that while more cuts are possible, there may not be much room left due to the lower starting point. This keeps AUDUSD’s pullback in check. Additionally, optimism around China and easing trade and geopolitical tensions offset fresh selling in the pair.
NZDUSD posts its biggest daily drop in four days, leading G10 currency losers against the US Dollar. The Greenback’s rebound, combined with market expectations for a 0.50% rate cut from the Reserve Bank of New Zealand (RBNZ) on Wednesday, weighs on the Kiwi. Meanwhile, USDCAD continues its recovery, disregarding a rise in Canada’s key export, Crude Oil, as concerns about the Bank of Canada’s dovish stance and ongoing geopolitical and economic uncertainties in Canada keep the pair moving higher.
Gold overlooks the US Dollar’s rebound, rising on a positive market mood and news of China’s stimulus, extending its recovery toward last week's record high. Meanwhile, talks of a delay in OPEC+ output increases, doubts about Trump’s potential to boost oil supplies, and Russia’s full return to energy markets help Crude Oil stay strong, following its biggest daily gain in a week.
The US Dollar's rebound, combined with crypto buyers seeking new bullish signals, weighs on Bitcoin (BTCUSD) and Ethereum (ETHUSD), keeping them within a short-term trading range. Additionally, mixed feelings in the crypto industry about FTX repayments and fading optimism around Trump’s support for cryptos, along with heavy ETF inflows, challenge the crypto buyers of late.
After a slow start to the week, mainly due to the US holiday, traders are expected to face heightened volatility with mixed signals from key risk factors, including Trump’s tariff updates, progress in the Russia-Ukraine peace talks, geopolitical tensions in the Middle East, and concerns over China’s economic health. Additionally, inflation data from Canada and the New York Empire State Manufacturing Index will capture the attention of momentum traders. The US Dollar could continue its recent recovery, putting pressure on EURUSD, GBPUSD, and the Antipodean currencies. Meanwhile, USDJPY’s rebound looks uncertain, as does crude oil’s strength. However, gold may maintain its upward momentum, while cryptocurrencies may remain weak, and equities could test the buying interest.
May the trading luck be with you!
