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AUD

Currency Market Sub-Plots Lift Greenback

The dollar is creeping upward as conflicting cross-currents in the foreign exchange markets contrive to keep most majors tightly rangebound. Yields are broadly flat, and equity futures are setting up for a slightly weaker open. Mexico’s Banxico yesterday became the second central bank—after the Reserve Bank of Australia—to defy increasingly-dovish policy expectations, sending the peso soaring by raising rates by half a percentage point in a move that surprised virtually every observer. In a statement accompanying the decision, policymakers said “Given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference...

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Bond Market Signals

Fairly modest moves across markets overnight, though the underlying themes of participants reassessing the outlook for how high interest rates could go, how long central banks may need to keep them there to squash inflation, and concerns about what the economic impacts could be continuing to bubble to the surface. The US S&P500 drifted back again (-0.9%) as US bond yields rose ~6bps across the curve. The USD index has range traded over the past few sessions, but in level terms it is still up near a 1-month high. EUR is down near 1.0730, USD/JPY is up around 131.60, and the...

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Volatility is picking up.

Given the activity spillovers from China’s faster-than-predicted shift away from zero-Covid, its economic reopening and stimulus drive should help lessen some of the downside risks to global growth. This should be an underlying Australian support via tailwinds provided to commodity prices. However, we think that a lot of that narrative is already priced in. Australian dollar appreciation has recently outpaced China’s activity pulse, indicating that an acceleration in momentum is being pre-empted. It would take further meaningful upgrades-which we don’t anticipate, to extend early 2023’s bullishness. Australian dollar, actual versus estimate

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Trading Remains Subdued as News Flow Slows to a Trickle

Foreign exchange markets are seemingly weighed down by a heavy blanket of snow this morning, with trading ranges remaining remarkably tight ahead of next week’s central bank meetings. The greenback is up microscopically, and the Australian dollar is the only major with material gains, having risen sharply after the latest inflation numbers surprised to the upside. Equity futures are tumbling ahead of the North American open, with weak earnings guidance from Microsoft helping to keep overall risk sentiment restrained. The euro remains well-supported after the latest purchasing manager survey data suggested that economic fortunes are set to diverge on either...

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Markets Remain Unnervingly Calm Ahead of Inflation Numbers

Liquidity conditions remain remarkably thin across currency markets as participants cut risk ahead of tomorrow’s inflation report. Equity markets are consolidating yesterday’s gains, ten-year Treasury yields are 3 basis points lower overnight, the Canadian dollar is down even as oil advances, and no major currency pair is more than a quarter-percentage point off levels that prevailed when we penned yesterday’s note. We’re borrrrrrred. Federal Reserve Chair Jerome Powell avoided providing anything that could be construed as forward guidance at yesterday’s conference on central bank independence in Stockholm. In a speech focused on the Fed’s unique and specific mandate, Mr. Powell...

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