USD/AUD

Monday on the Currency Markets: The Calm Before the Storm

The first trading day of the week on Asian currency markets was marked by cautious anticipation. Most regional currencies remained within narrow trading ranges, as though listening closely to events unfolding thousands of kilometres away. Investors faced a difficult choice: on the one hand, the US dollar is receiving safe-haven support amid the escalating conflict in the Middle East; on the other hand, declining US Treasury yields and expectations that the Federal Reserve will keep its policy unchanged are putting pressure on the currency.

The US Dollar Index stabilised at 100.73 after briefly strengthening at the beginning of the session. However, this calm may be deceptive, as a busy week lies ahead, featuring central bank meetings and the release of key economic data across Asia. Markets are preparing for possible surprises.

The Dollar and the Middle East: A Game on Two Fronts

Geopolitics continues to be the primary driver of currency markets. The conflict between the United States and Iran has entered its ninth consecutive night of air strikes. Brent crude oil prices have risen sharply, automatically intensifying concerns about global inflation. Should energy supplies be disrupted, fuel prices could soar, affecting consumers and manufacturers worldwide.

For the US dollar, this situation is a double-edged sword. On the one hand, rising oil prices support the dollar because the United States is a major energy exporter, and higher oil prices improve the country’s trade balance. On the other hand, elevated oil prices could force the Federal Reserve to reconsider its monetary policy if inflation begins to accelerate.

For now, however, markets are pricing in the continuation of the Fed’s current policy at its meeting on 29 July. Federal funds futures indicate an 85.6% probability that interest rates will remain unchanged. This...

Introduction: The Calm Before the Storm or the Quiet After It?

Thursday’s trading session in Asian currency markets was surprisingly subdued. Most regional currencies remained confined to narrow trading ranges, as though bracing themselves for an inevitable shock. The weakening of the US dollar, which would normally provide support to Asian assets, was completely offset by increasingly troubling geopolitical developments. Investors who were ready to embrace risk only yesterday have now adopted a wait-and-see approach—and they have compelling reasons to do so.

The Middle East is once again at the center of global attention, and this time the situation appears far more serious than another escalation in rhetoric. For the fifth consecutive day, the US military has carried out strikes against Iranian targets. The Pentagon has not commented on the details of the operations, but regional sources indicate that the attacks are specifically targeting Iran’s military infrastructure.

Tehran, meanwhile, has responded with increasingly forceful statements, and the Strait of Hormuz has become the central subject of every discussion. Iranian officials have once again emphasized that control over this strategic route is not merely a matter of economic advantage but a cornerstone of national security. For financial markets, this sounds like a warning: disruptions to energy supplies are no longer a purely hypothetical threat but an increasingly realistic scenario.

Against this backdrop, the US dollar is struggling to find firm ground. The weakness of the American currency no longer appears to be a temporary correction. Inflation data released the previous day came in below expectations, and markets are now almost unanimous in expecting the Federal Reserve to leave interest rates unchanged at its next meeting.

The US Dollar Index has stabilized near 100.5, hovering close to its monthly lows. However, rather than celebrating the weaker dollar, Asian investors are choosing to...

Introduction: The Calm Before the Storm

Tuesday’s trading session in Asian currency markets was marked by a wait-and-see attitude. The Japanese yen held its ground, but traders remained on alert over the possibility of intervention by Tokyo. Policymakers’ comments regarding the allocation of state pension fund assets kept the market on edge, preventing the yen from either strengthening or weakening significantly.

The dollar also remained largely unchanged ahead of key US inflation data scheduled for release later on Tuesday. Investors are awaiting June Consumer Price Index figures and comments from Federal Reserve Governor Christopher Waller. These events are expected to determine the future path of US interest rates.

Meanwhile, tensions in the Middle East continue to escalate. President Trump stated that the United States would restore the naval blockade of Iran and ensure that the Strait of Hormuz remains open under the protection of the US armed forces. Oil prices surged, bringing inflation risks back into focus.

In this article, we will examine all the factors affecting the yen and other Asian currencies, assess the outlook for the dollar, and attempt to determine where the market may be heading in the coming days.

The Yen: Expectations of Intervention and the Repatriation of Pension Assets

The Finance Minister Clarifies Her Position

The yen remained in the spotlight after Finance Minister Satsuki Katayama elaborated on comments she had made the previous week. She said that the portfolio of the Government Pension Investment Fund could be reviewed if necessary, as Japan pursues policies aimed at increasing the attractiveness of yen-denominated assets.

These are not merely words. Japan’s Government Pension Investment Fund is the world’s largest pension fund, managing more than $1.5 trillion in assets. Any change in its investment strategy could have an enormous impact on currency markets.

Katayama also proposed allowing Japanese...