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Dollar remained generally firm in otherwise quiet Asian trading, with broader FX flows subdued but sentiment increasingly cautious. There is a noticeable sense of nervousness across markets as geopolitical risks intensify. Precious metals edged higher, with Gold and Silver ticking up modestly. However, there is no clear follow-through buying. The lack of sustained momentum suggests traders are hedging selectively rather than positioning aggressively for full-scale escalation.

The central question is whether the US will move forward with a military strike against Iran or whether diplomatic efforts will cool the situation. Markets appear to be in wait-and-see mode. Oil, by contrast, is reacting more decisively. WTI surged above 67 and reached its highest level since last August.

US President Donald Trump overnight said he would decide “over the next probably 10 days” whether to strike Iran, adding that failure to reach a meaningful deal could lead to “bad things.” The timeline has effectively placed a geopolitical clock on markets. While Iranian and US negotiators reportedly agreed on “guiding principles,” White House officials indicated that significant differences remain. That gap is keeping energy markets on edge.

Oil traders are particularly concerned about the Strait of Hormuz, a critical chokepoint for global crude flows. Any disruption there could have outsized impact on energy prices and inflation expectations. For now, the reaction is concentrated in energy markets rather than broad risk-off flows. Equities are holding up, and haven demand in metals remains tentative.

On the weekly scoreboard, Dollar remains the strongest performer, followed by Aussie and Loonie, the latter supported by higher oil. Yen is weakest despite rising geopolitical tension, trailed by Sterling and Swiss Franc. Euro and Kiwi sit mid-pack as markets brace for the next development.

In Asia, Nikkei fell -1.12%. Hong Kong HSI is down -0.81%. China is still on holiday. Singapore Strait Times is up 0.19%. Japan 10-year JGB yield fell -0.003 to 2.112. Overnight, DOW fell -0.54%. S&P 500 fell -0.28%. NADAQ fell -031%. 10-year yield fell -0.004 to 4.075.

UK retail sales surge 1.8% in January, strongest since May 2024

UK retail sales volumes jumped 1.8% mom in January, far exceeding expectations of 0.2% and marking the largest monthly increase since May 2024. The rebound suggests consumers began the year on firmer footing despite broader concerns over slowing growth.

On an annual basis, sales volumes rose 4.5% yoy, pointing to solid underlying demand. Over the three months to January, volumes edged up 0.1% compared with the prior three-month period and were 2.6% higher than a year earlier, indicating steady momentum rather than a one-off spike.

The data offer a counterbalance to recent signs of labor market softening and cooling inflation. While markets continue to price a March rate cut from BoE, resilient consumer spending may temper expectations for an aggressive easing cycle, particularly if inflation remains sticky in services.

Japan's CPI slows to 1.5% in January, core measures ease further

Japan’s headline CPI slowed to 1.5% yoy in January from 2.1%, falling below the BoJ’s 2% target for the first time in 45 months. Core CPI (excluding fresh food) declined to 2.0% from 2.4%, while core-core inflation eased to 2.6% from 2.9%, signaling broader moderation in underlying price pressures.

The slowdown was largely driven by energy, where costs dropped -5.2% yoy after a -3.1% fall in December. Goods inflation cooled sharply from 2.7% to 1.6%. In contrast, services inflation remained steady at 1.4%, suggesting domestic wage-driven price gains have yet to accelerate meaningfully.

Food inflation remains elevated but is gradually cooling. Prices excluding fresh items rose 6.2% yoy, down from 6.7%. Rice inflation slowed for an eighth consecutive month to 27.9%.

Japan PMI composite jumps to 53.8, export demand surges

Japan’s private sector gathered further momentum in February, with PMI Manufacturing rising from 51.5 to 52.8 and PMI Services edging up to 53.8. PMI Composite climbed from 53.1 to 53.8, marking the strongest expansion since May 2023 and signaling a more broad-based recovery.

According to S&P Global’s Annabel Fiddes, the upturn was supported by firmer demand both domestically and overseas. Total new orders expanded at the quickest pace since May 2023, while manufacturers recorded the strongest increase in export work in eight years.

Stronger sales pushed capacity utilization higher, with backlogs rising at a record pace. Firms responded by increasing hiring, while improved demand allowed businesses to regain some pricing power despite persistent cost pressures. Business confidence also strengthened, supported by new product launches, technology demand and optimism following Prime Minister Sanae Takaichi’s landslide election victory.

Australia PMI composite dives to 52.0 in February, cost pressures reaccelerate

Australia’s February flash PMIs signaled a slowdown in private sector momentum. PMI Manufacturing slipped from 52.3 to 51.5, while PMI Services dropped sharply from 56.3 to 52.2. As a result, PMI Composite fell from 55.7 to 52.0, indicating growth continued but at a much more modest pace.

According to S&P Global’s Eleanor Dennison, the private sector was unable to sustain the strong start to the year. Both manufacturing and services recorded softer expansions in output and new orders, with the services sector experiencing the more pronounced pullback.

However, inflationary pressures remain evident. Firms reported elevated wage burdens and higher supplier costs, pushing both input and output price inflation to five-month highs. Despite softer new business growth, job creation accelerated to an 11-month high, underscoring labor market tightness.

RBNZ’s Breman confident inflation will return to target, policy not on preset path

RBNZ Governor Anna Breman said in speech that the central bank remains confident inflation will return to target despite its current 3.1% reading. She expects inflation to move back inside the 1–3% band in the first quarter and ease toward the 2% midpoint over the 12 months. That formed a key basis for the decision to keep the OCR unchanged at 2.25% this week.

Breman stressed that policymakers needed to determine whether the recent uptick in inflation signaled broader price pressures or merely a "temporary bump". She pointed to global factors lifting tradables prices, while non-tradables inflation continues to decline, albeit slowly.

The economy expanded in the September quarter and indicators suggest recovery is continuing into early 2026. With unemployment still elevated and wage growth subdued, the RBNZ sees room for recovery without reigniting inflation.

At the same time, she reiterated that monetary policy is "not on a preset course".

NZ trade deficit at NZD -519m as China flows diverge

New Zealand’s goods exports rose 2.6% yoy in January to NZD 6.2B, up NZD 157m from a year earlier. Goods imports increased 1.9% yoy to NZD 6.7B, up NZD 126m. The result was a monthly trade deficit of NZD -519m.

By destination, export performance was mixed. Shipments to China, New Zealand’s largest trading partner, fell NZD -118m (-7.0%) yoy. In contrast, exports to Australia jumped NZD 134M (+20%), while flows to the EU (+16%) and Japan (+11%) also posted solid gains. Exports to the US were broadly flat.

On the import side, China led the increase, with imports surging NZD 346m (+24%) yoy. South Korea also recorded a strong rise (+36%), while imports from the EU edged higher. Meanwhile, purchases from the US (-17%) and Australia (-8.1%) declined.

The data suggest stable overall trade volumes but highlight shifting bilateral flows, particularly with China, which may have implications for growth in coming months.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7029; (P) 0.7054; (R1) 0.7085; More...

AUD/USD edges lower today as correction from 0.7146 extends, and intraday bias remains neutral. Deeper retreat might be seen, but downside should be contained above 0.6896 support to bring another rally. On the upside, above 0.7146 will resume larger up trend to 100% projection of 0.5913 to 0.6706 from 0.6420 at 0.7213.

In the bigger picture, current development argues that rise from 0.5913 (2024 low) is reversing whole down trend from 0.8006 (2021 high). Further rally should be seen to 61.8% retracement of 0.8006 to 0.5913 at 0.7206. This will remain the favored case as long as 0.6706 resistance turned support holds, even in case of deep pullback.

UK retail sales volumes jumped 1.8% mom in January, far exceeding expectations of 0.2% and marking the largest monthly increase since May 2024. The rebound suggests consumers began the year on firmer footing despite broader concerns over slowing growth.

On an annual basis, sales volumes rose 4.5% yoy, pointing to solid underlying demand. Over the three months to January, volumes edged up 0.1% compared with the prior three-month period and were 2.6% higher than a year earlier, indicating steady momentum rather than a one-off spike.

The data offer a counterbalance to recent signs of labor market softening and cooling inflation. While markets continue to price a March rate cut from BoE, resilient consumer spending may temper expectations for an aggressive easing cycle, particularly if inflation remains sticky in services.

Full UK retail sales release here.

In focus today

In the euro area, the flash February PMI report is released today. We expect a decent increase in the manufacturing PMI to 50.0 from 49.5 as we have received positive signs from higher new orders and metal prices lately. The services PMI have been on a declining trend for the past two months and we expect a continuation in February with a decline from 51.6 to 51.4. The contrasting trends between services and manufacturing leaves the composite measure expected unchanged at 51.3 still showing decent activity in the economy.

Also in the euro area, we receive the first estimate of 2025Q4 wage growth through the ECB's negotiated wages indicator. The indicator only reports the part of wage growth that is collectively bargained, not painting the full picture of wage growth. The tracker declined to 1.9% y/y in Q3 from 4.0% y/y in Q2 due to heavy distortions from one-off payments. We expect a swift rebound in Q4 to 2.9% y/y as indicated by the ECB's wage tracker.

In the US, February flash PMIs, Q4 flash GDP, and December PCE inflation are due for release. For flash PMIs it is expected that both manufacturing and services PMIs will increase in February with manufacturing PMI expected at 52.6 (Jan: 52.4) and services PMI at 53.0 (Jan: 52.7). For flash GDP, consensus expects the seasonally adjusted growth in 2025Q4 at 3.0% q/q AR, which is a slowing from the extraordinarily strong growth in Q3 at 4.4% q/q. Finally, the PCE inflation for December is expected to show unchanged headline at 2.8% y/y and a small rise in core to 2.9% y/y.

Economic and market news

What happened overnight

In Japan, January's inflationary data came in as expected with CPI falling to 1.5% y/y (Dec: 2.1% y/y) and core CPI at 2.0% y/y (Dec: 2.4% y/y). The decline in headline inflation was primarily driven by utility subsidies and base effects from of last year's price surges. At the same time core inflation hit the lowest point in two years. The relatively low core inflation compared to recent years may influence the central banks decision on how soon to raise interest rates, although demand continues to be strong as shown in the February flash PMIs and fiscal policy is easing.

Japanese flash PMIs were also released overnight. Manufacturing PMI increased to 52.8 in February 2026 (Jan: 51.5), the highest since May 2022, driven by strong demand with factory output and new orders continuing their upward trend. Services PMI increased slightly to 53.8 in February (Jan: 53.7) with employment continuing to grow, though the pace of hiring eased slightly. These changes results in composite PMI increasing to 53.8 (Jan: 53.7). With January's PMI composite in Japan showing the fastest pace in over a year, February's flash figures indicate continued positive momentum.

What happened yesterday

In the euro area, flash estimates for consumer confidence data increased slightly to -12.2 in February 2026 (Jan: -12.4), the highest since November 2024 but still below expectations of -11.8. The data signals cautious household sentiment, staying below long-term averages, despite sound balance sheets and real income gains.

In the US, the trade deficit re-widened in December, as import volumes have started to recover after the tariff-driven slump seen earlier in 2025. This reflects that import volumes have been too low compared to solid final demand. The wider trade deficit will weigh on tomorrow's Q4 GDP via weaker net exports.

Philly Fed manufacturing index recovered further in February, but capex and new orders subindices weakened from January. Weekly initial jobless claims came in lower, while continuing claims remained steady giving overall positive signals.

In geopolitics, tensions between the US and Iran are continuing, with President Trump stating at his Board of Peace that the next 10-15 days will determine whether a deal is struck or military action is taken. The US has recently deployed significant military assets to the Middle East, including aircraft carriers, warships, and air defence systems, positioning for potential strikes on Iran's nuclear and missile sites. While indirect talks earlier this week have made limited progress, Iran has vowed retaliation against any US attack.

Equities: Equities were lower, breaking the three-session string of gains the US. Defensives took a slight leadership while tech, consumer discretionary and financials were 0.5-1% lower. It was not a major defensive rotation. In fact, the tech retreat was driven big tech rather than software, a slight trend shift from the last two weeks. What is interesting is that small caps outperformed, despite the defensive shift. S&P 500 ultimately closed -0.3% lower and Stoxx 600 -0.5%, but futures are higher this morning.

FI and FX: EUR/USD has dropped well below the 1.18 level as the USD continues to consolidate its gains this week with a combination of factors having supported the dollar including higher oil prices amid renewed US-Iran tensions - with Brent trading at year-to-date highs above USD 70/bbl. Similarly, US yields climbed slightly higher during yesterday's session in a session with overall positive signals on the macro front. Yesterday, was another day of broad SEK underperformance with NOK also performing poorly. Today, we have a packed calendar with PMI releases, core PCE and the Q4 GDP print out of the US and PMI data and the first estimate of wage growth in 2025Q4 with the ECB's negotiated wages indicator in the euro area.

Key Highlights

• USD/JPY started a steady increase from the 152.25 support.
• It cleared a key rising channel with resistance at 154.00 on the 4-hour chart.
• EUR/USD is again moving lower below the 1.1800 support.
• Bitcoin at a risk of more downside below $65,000.

USD/JPY Technical Analysis

The US Dollar formed a base above 152.25 against the Japanese Yen. USD/JPY started a fresh increase above 153.50 and 154.00.

Looking at the 4-hour chart, the pair cleared a key rising channel with resistance at 154.00. There was a move above the 50% Fib retracement level of the downward move from the 157.66 swing high to the 152.27 low.

The pair settled above the 100 simple moving average (red, 4-hour). On the upside, the pair is now facing hurdles near 155.60 and the 61.8% Fib retracement level of the downward move from the 157.66 swing high to the 152.27 low.

The next stop for the bulls might be 156.00 and the 200 simple moving average (green, 4-hour). A close above 156.00 could open the doors for more gains. In the stated case, the bulls could aim for a move to 157.50. The main resistance sits near 158.00.

Immediate support could be 154.75. The first major area for the bulls might be near 154.20. The main support sits at 153.50, below which the pair might gain bearish momentum. In the stated case, it could even revisit 152.00.

Looking at EUR/USD, the pair is again moving lower and might continue to move down if there is a close below 1.1720.

Upcoming Key Economic Events:

• Euro Zone Manufacturing PMI for Feb 2026 (Preliminary) – Forecast 50.0, versus 49.5 previous.
• Euro Zone Services PMI for Feb 2026 (Preliminary) – Forecast 52.0, versus 51.6 previous.
• US Gross Domestic Product for Q4 2025 (Preliminary) – Forecast 3.0% versus previous 4.4%.
• US S&P Global Manufacturing PMI for Feb 2026 (Preliminary) – Forecast 52.6, versus 52.4 previous.
• US S&P Global Services PMI for Feb 2026 (Preliminary) – Forecast 53.0, versus 52.7 previous.

RBNZ Governor Anna Breman said in speech that the central bank remains confident inflation will return to target despite its current 3.1% reading. She expects inflation to move back inside the 1–3% band in the first quarter and ease toward the 2% midpoint over the 12 months. That formed a key basis for the decision to keep the OCR unchanged at 2.25% this week.

Breman stressed that policymakers needed to determine whether the recent uptick in inflation signaled broader price pressures or merely a "temporary bump". She pointed to global factors lifting tradables prices, while non-tradables inflation continues to decline, albeit slowly.

The economy expanded in the September quarter and indicators suggest recovery is continuing into early 2026. With unemployment still elevated and wage growth subdued, the RBNZ sees room for recovery without reigniting inflation.

At the same time, she reiterated that monetary policy is "not on a preset course".

Full speech of RBNZ's Breman here.

The RBNZ’s February economic outlook was a mix of optimism and pessimism. The implications are a higher bar for an early start to OCR increases and a bias towards a weaker exchange rate.

• The RBNZ’s economic outlook was a mix of optimism and pessimism.
• The medium-term growth outlook isn’t boosted much despite low interest rates and stronger recent data.
• Pessimism about the housing market and its impact on consumer spending is prominent in the RBNZ’s concerns.
• The implications are a higher bar for an early start to OCR increases and a bias towards a weaker exchange rate.

This week was dominated by Governor Breman’s inaugural outing at the release of a Monetary Policy Statement (MPS). The general tone of the message was notably more dovish than market expectations, even though the RBNZ still sees a December initial hike as likely (but not certain). But the subtext was a bit pessimistic, indicating the bar for an early rate rise remains high. This implies the balance of risk has tilted away from an interest rate rise ahead of the General Election on 7 November. This also likely embeds a weak tone for the NZD for a while.

In many respects, this week’s MPS was according to expectations. We had anticipated a cautiously optimistic view from the RBNZ on the economic recovery that culminated in a signalled first shift in the OCR towards the neutral zone right at the end of 2026. We didn’t expect the RBNZ to signal any chance of further easing in the interim and we didn’t expect the RBNZ to talk about a pre-election tightening. The RBNZ’s messaging – which was notably much clearer than has sometimes been the case in the past – met those expectations.

However, there were aspects of the RBNZ’s story that remain less optimistic – indeed, in our view, pessimistic given the current low level of interest rates. At a high level the RBNZ presented picture of a solid recovery through the next couple of years. Growth is expected to be around 2.8% over each of 2026 and 2027, which is solidly above trend growth and sufficient to eat up excess capacity eventually. However, the pessimistic overlay is that these forecasts were not any stronger than presented late last year before we saw a run of stronger economic indicators, including Q3 GDP itself.

The stronger growth indications we saw late last year are reflected in the RBNZ’s forecast of solid growth in the first half of 2026 (which was revised up marginally). But the RBNZ has scaled back its forecasts for growth in the second half of 2026 (from 1.5% to 1.2% over H2 2026). This means that although the output gap initially closes a bit more quickly in early 2026, it still doesn’t close fully until the end of 2028. It also means the path to lower unemployment is much slower than previously expected, so that the unemployment rate ends 2026 at a still elevated 5.0%.

This less optimistic view of the future, even given low interest rates, means inflation pressures are not seen as pressing and the urgency to raise interest rates is not great. This is why Governor Breman emphasized that market pricing of at least one OCR increase in 2026 was too aggressive. Indeed, she noted that in the MPC’s eyes, while a rate rise at the end of the year looks likely, it is hardly a done deal.

The key issue weighing on the MPC’s mind is the role that house prices will play in shaping the economic recovery. And this is an area where again the RBNZ took a very pessimistic view. To be certain, house prices have been flat or have fallen in seven of the last eight months. But the RBNZ took the view that recent momentum can be extrapolated into the whole of 2026 with just a marginal improvement in 2027. And that softness in house prices is expected to be a drag on households spending. In a year where economic growth is forecast to run at an above-trend 2.8%, house prices are forecast to be flat in 2026. This is a remarkable assumption remembering that in late 2025 the RBNZ thought house prices would rise around 3.8% in 2026 – even though back then the short-term economic outlook seemed less positive.

If the RBNZ’s scenario comes to pass it will be notable indeed as it’s usually the case that an improving growth path prompted by low interest rates, reduces unemployment and lifts household incomes, increasing the demand for housing and house prices. Considering the trends post the Global Financial Crisis, a year of 2.8% GDP growth would usually see house prices rise at least somewhat. Or looking at it the other way around, zero house price growth would normally reflect a much slower economy and growth closer to 1.5% y/y. If we see another year of growth as weak at 1.5% then it’s likely the output gap won’t close and unemployment rate won’t fall (indeed it could rise).

Such a scenario would ask hard questions of New Zealand’s growth potential and the level of the “neutral” interest rate. We don’t think that this would be consistent with neutral rates sitting in the 3-4% range (which covers the range of RBNZ and private forecasters assumptions) as it would be more likely that even a 2.25% interest rate isn’t really that stimulatory.

All of this is of course assuming no exogenous shock drives another weak growth outcome in 2026. No such shock is currently forecast – and indeed the RBNZ expects global growth over 2026 will be similar to 2025. The Governor did present a laundry list of downside risks coming from global issues. But none of these are impacting on the New Zealand economic recovery right now. And we don’t think they are weighing much on the policy outlook at the minute.

These pessimistic scenarios also ask hard questions of where the exchange rate is heading. As we have noted many times, foreign exchange is a relative game, and right now other countries are moving ahead of New Zealand. We shouldn’t see a very strong exchange rate at all if these more pessimistic scenarios come to pass. The situation seems particularly pressing versus the currently strong Australian dollar where interest rate expectations are firming. We are slightly revising down our view of the NZD/AUD exchange rate for the next 6 months given the RBNZ’s dovish views, to reflect the sense that that balance of risks for New Zealand interest rates have tilted away from a pre-election start to the tightening cycle. Ultimately, we remain optimistic the recovery will be stronger than the RBNZ fears. But this is not going to be settled until the second half of 2026 when the RBNZ and our forecasts start to significantly diverge.

In the meantime, the RBNZ’s focus on housing and the implications for household consumption growth will place a premium on house price data and consumer spending indicators. As noted, this week’s data on house prices confirm still flat prices and unchanged momentum. This week’s electronic card spending data was weaker than expected – but the data appears a lot weaker than card spending data produced by the banks, including our own indicator. Hence, we wonder if the Stats NZ data is somehow missing something as retail trends and the payments marketplace is shifting. Next week’s Retail Trade Survey for the December quarter will be interesting in that regard.

Japan’s headline CPI slowed to 1.5% yoy in January from 2.1%, falling below the BoJ’s 2% target for the first time in 45 months. Core CPI (excluding fresh food) declined to 2.0% from 2.4%, while core-core inflation eased to 2.6% from 2.9%, signaling broader moderation in underlying price pressures.

The slowdown was largely driven by energy, where costs dropped -5.2% yoy after a -3.1% fall in December. Goods inflation cooled sharply from 2.7% to 1.6%. In contrast, services inflation remained steady at 1.4%, suggesting domestic wage-driven price gains have yet to accelerate meaningfully.

Food inflation remains elevated but is gradually cooling. Prices excluding fresh items rose 6.2% yoy, down from 6.7%. Rice inflation slowed for an eighth consecutive month to 27.9%.

Japan’s private sector gathered further momentum in February, with PMI Manufacturing rising from 51.5 to 52.8 and PMI Services edging up to 53.8. PMI Composite climbed from 53.1 to 53.8, marking the strongest expansion since May 2023 and signaling a more broad-based recovery.

According to S&P Global’s Annabel Fiddes, the upturn was supported by firmer demand both domestically and overseas. Total new orders expanded at the quickest pace since May 2023, while manufacturers recorded the strongest increase in export work in eight years.

Stronger sales pushed capacity utilization higher, with backlogs rising at a record pace. Firms responded by increasing hiring, while improved demand allowed businesses to regain some pricing power despite persistent cost pressures. Business confidence also strengthened, supported by new product launches, technology demand and optimism following Prime Minister Sanae Takaichi’s landslide election victory.

Full Japan PMI flash release here.

Australia’s February flash PMIs signaled a slowdown in private sector momentum. PMI Manufacturing slipped from 52.3 to 51.5, while PMI Services dropped sharply from 56.3 to 52.2. As a result, PMI Composite fell from 55.7 to 52.0, indicating growth continued but at a much more modest pace.

According to S&P Global’s Eleanor Dennison, the private sector was unable to sustain the strong start to the year. Both manufacturing and services recorded softer expansions in output and new orders, with the services sector experiencing the more pronounced pullback.

However, inflationary pressures remain evident. Firms reported elevated wage burdens and higher supplier costs, pushing both input and output price inflation to five-month highs. Despite softer new business growth, job creation accelerated to an 11-month high, underscoring labor market tightness.

Full Australia PMI flash release here.

New Zealand’s goods exports rose 2.6% yoy in January to NZD 6.2B, up NZD 157m from a year earlier. Goods imports increased 1.9% yoy to NZD 6.7B, up NZD 126m. The result was a monthly trade deficit of NZD -519m.

By destination, export performance was mixed. Shipments to China, New Zealand’s largest trading partner, fell NZD -118m (-7.0%) yoy. In contrast, exports to Australia jumped NZD 134M (+20%), while flows to the EU (+16%) and Japan (+11%) also posted solid gains. Exports to the US were broadly flat.

On the import side, China led the increase, with imports surging NZD 346m (+24%) yoy. South Korea also recorded a strong rise (+36%), while imports from the EU edged higher. Meanwhile, purchases from the US (-17%) and Australia (-8.1%) declined.

The data suggest stable overall trade volumes but highlight shifting bilateral flows, particularly with China, which may have implications for growth in coming months.

Full NZ trade balance release here.