Dollar’s selloff extended through the week, only managing a brief pause after slipping through the key psychological level of 1.2 against Euro briefly. While the pace of decline has slowed, there is little sign of a meaningful recovery taking shape. The bounce has so far been shallow. And, Dollar remains under pressure on multiple fronts, with headwinds increasingly coming from within the US rather than from external shocks or data surprises.
Markets took particular note of remarks from US President Donald Trump, who expressed clear comfort with Dollar’s decline. In a market accustomed to verbal pushback against sharp currency moves, the lack of resistance from the White House has been interpreted as a green light for further weakness.
Asked directly whether the Dollar had fallen too far after sliding about 10% over the past year, Trump dismissed the concern, saying the currency was “doing great” and pointing to strong business activity as justification. Trump also revisited his long-standing complaints about Asian currencies, recalling past disputes with Japan and China over devaluation. The contrast between those confrontations and his current stance reinforces the impression that a weaker Dollar is no longer seen as a problem.
Such remarks matter for markets. When the President signals indifference—or endorsement—toward currency depreciation, it emboldens traders to maintain pressure rather than anticipate a policy-backed rebound.
Adding to the unease, IMF Managing Director Kristalina Georgieva said earlier this week that the Fund is preparing for scenarios involving sharp selloffs in US dollar-denominated assets. While framed as contingency planning, the comments highlights growing institutional awareness of tail risks around the Dollar. Georgieva noted that the IMF is stress-testing “unthinkable” scenarios, including potential runs on Dollar assets, as part of its broader surveillance work. Even without assigning probabilities, the acknowledgement adds to a fragile confidence backdrop.
In currency markets, the impact is clear. For the week so far, Dollar sits at the bottom of the performance table, followed by Loonie and Sterling. At the other end, Yen remains the strongest, supported by lingering intervention threats, though follow-through buying has been limited. Swiss Franc is the second strongest, with gains against both Euro and Sterling pointing to underlying risk aversion. Aussie ranks third, buoyed by strong inflation data that has all but confirmed an RBA rate hike next week. Euro and Kiwi trade in the middle of the pack.
Australia CPI surges to 3.6% in Q4, 3.8% in December
Australia’s Q4 CPI showed little relief for RBA where it matters most for policy. Headline inflation rose 0.6% qoq, slightly below expectations of 0.7% and slowing sharply from the prior quarter’s 1.3% gain. However, on an annual basis, CPI accelerated from 3.2% yoy to 3.6% yoy, matching forecasts and keeping inflation well above the RBA’s target band.
The more important signal came from underlying inflation. Trimmed mean CPI rose 0.9% qoq, easing marginally from 1.0% previously but beating expectations of 0.8%. Annual trimmed mean inflation climbed from 3.0% yoy to 3.4% yoy, above the expected 3.2%, reinforcing concerns that price pressures remain persistent.
December’s monthly details added to that unease. Headline CPI jumped 1.0% mom, lifting the annual rate from 3.5% yoy to 3.8%, both above expectations. Trimmed mean CPI rose a more modest 0.2% mom, but annual core inflation still edged up from 3.2% yoy to 3.3% yoy.
Price pressures remain broad in December. Goods inflation accelerated from 3.2% yoy to 3.4%, driven largely by a 21.5% surge in electricity prices. Services inflation climbed from 3.6% yoy to 4.1%, led by domestic travel and accommodation and rising rents.
Markets are now firming up their expectation that RBA will return to rate hike in February.
AUD/USD surges past 0.70 as RBA hike solidify, 0.72 the test for long term strength
Australian Dollar extended its rally this week, with AUD/USD breaking above 0.70 psychological level. The move has been supported by broad-based Dollar weakness, but domestic factors have played a central role following Australia’s stronger-than-expected inflation data.
December CPI showed another month of acceleration, while Q4 headline inflation printed at 3.6%. More importantly for policymakers, trimmed mean CPI at 3.4% underscored persistent underlying inflation that sits uncomfortably above the RBA’s target band. That inflation shock has quickly filtered into economist forecasts. Westpac and ANZ revised their outlooks, now expecting the RBA to raise the cash rate at its upcoming meeting next week. All four major Australian banks now forecast a 25bp hike back to 3.85%.
The key uncertainty now lies beyond the initial move. The question is whether the RBA would signal scope for a more extended tightening cycle, or frame the hike as a one-off adjustment designed to reassert inflation control.
Technically, AUD/USD remains in clear upward acceleration, with D MACD still pointing higher. The advance from 0.5913 is on track toward its 100% projection of 0.5913 to 0.6706 from 0.6420 at 0.7213 next. On the downside, below 0.6901 support will bring consolidations first. But downside should be contained above 0.6706 resistance turned support to bring another rally.
More importantly, the decisive break above 0.6941 structural resistance this week strengthens the case that the rise from 0.5913 is reversing the entire decline from the 0.8006 (2020 high). Next target is 61.8% retracement of 0.8006 to 0.5913 at 0.7206, which is close to the above 0.7213 projection level.
Reactions to this 0.72 resistance zone will decide whether current rise from 0.5913 is the third leg of the pattern from 0.5506 (2020 low), and open the door to further medium up trend through 0.8006.
Fed and BoC holds unlikely to alter USD/CAD downtrend
Two major central bank decisions from North America headline the day, with both the BoC and the Fed widely expected to keep interest rates unchanged. USD/CAD, meanwhile, is unlikely to see its broader trend altered by either decision. The current selloff would likely continue through 1.3538 low as driven by the overall selloff in Dollar.
For the BoC, markets expect rates to remain at 2.25%, the lower bound of the bank’s estimated 2.25–3.25% neutral range. A recent Reuters poll showed nearly 75% of economists expect the BoC to keep policy unchanged through 2026.
At this stage, the BoC appears comfortable with a prolonged wait-and-see stance. However, slack remains in the labour market, growth momentum is uncertain, and policy is not yet clearly stimulative despite the 275bp of rate cuts delivered between June 2024 and October 2025.
Hence, if policy does move again this year, risks are tilted toward further cuts rather than hikes. That bias hinges heavily on trade outcomes. As long as key sectors retain preferential access to the US—either through deals or prolonged negotiations—the growth outlook remains intact.
However, should tariffs expand to a broader range of industries, the drag on activity would intensify. In that scenario, the BoC would likely be forced to resume easing to cushion the economic impact.
Turning to the Fed, rates are expected to remain unchanged at 3.50–3.75%, making this very much a holding meeting. Markets will be listening closely for any shift in tone that hints at future action rather than focusing on the decision itself.
Voting dynamics will be watched carefully. Stephen Miran, a known dove, is expected to dissent in favor of a cut. Any additional votes for easing beyond Miran would be interpreted as a clear dovish signal.
For now, the Fed is expected to remain on hold through the remainder of Jerome Powell’s term in May. Markets price roughly a 63% chance of a June cut, but conviction remains limited given multiple wild cards, including economic data, trade relations, financial market stability, and President Donald Trump’s choice of the next Fed chair.
Technically, for USD/CAD, current decline should continue as long as 1.3738 resistance holds. It’s seen as part of the downtrend from 14791. Break of 1.3538 will pave the way to 61.8% projection of 1.4791 to 1.3538 from 1.4139 at 1.3365 in the near term.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.1902; (P) 1.1992; (R1) 1.2134; More….
EUR/USD’s rally is still in progress and breached 1.2 psychological level before retreating slightly. Intraday bias stays on the upside. Decisive break above 1.2 will carry larger bullish implications. Next near term target will be 38.2% projection of 1.0176 to 1.1917 from 1.1576 at 1.3434. On the downside, below 1.1906 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 1.1576 support holds, even in case of deep pullback.
In the bigger picture, as long as 55 W EMA (now at 1.1443) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will add to the case of long term bullish trend reversal. Next medium term target will be 138.2% projection of 0.9534 to 1.1274 from 1.0176 at 1.2581. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.
