Federal Reserve Governor Christopher Waller indicated a preference for keeping US interest rates steady at the upcoming September meeting, provided there are no surprises in forthcoming inflation data. This dovish shift led to a notable decline in market expectations for a September rate hike, with the CME FedWatch tool showing the probability dropping to 50.2%, down from 63.2% the previous day [1][2][4]. Waller's comments contrasted with the more hawkish tone set by Chairman Kevin Warsh a week earlier [2][4].
The US Dollar Index (DXY) weakened for the third consecutive day, trading around 99.00 during Asian hours on Friday, reflecting downward pressure from Waller's remarks and anticipation of the US August employment report. The Greenback's decline was further exacerbated by a strengthening Japanese Yen, which surged 1.5% against the USD amid speculation of potential official intervention and expectations of more aggressive policy tightening by the Bank of Japan [2].
In the currency markets, the New Zealand Dollar (NZD/USD) gained momentum, approaching 0.5895, as the US Dollar softened. The Reserve Bank of New Zealand (RBNZ) recently raised its Official Cash Rate by 25 basis points to 2.75%, with officials signaling a data-dependent approach to future hikes. RBNZ Governor Anna Breman suggested further increases are likely but emphasized the need to assess the impact of previous hikes, while Assistant Governor Karen Silk indicated the next move may not come until December [1]. Analysts at Commerzbank highlighted the RBNZ's flexible stance, noting that the future rate path is not pre-determined and will depend on inflation and economic recovery [1].
The Australian Dollar (AUD/USD) also extended gains, trading around 0.7210, buoyed by robust economic growth data and rising expectations of an imminent rate hike by the Reserve Bank of Australia (RBA). Market-implied probabilities for a rate hike this month increased to 58% from 49% after the GDP release, with a rate adjustment to 4.60% fully priced in for November [4]. Meanwhile, Australia's July trade surplus narrowed slightly, though June's figure was revised higher [4].
In the commodities space, Silver (XAG/USD) edged lower, trading below $67.00 and down 0.30% for the day, as traders awaited the US Nonfarm Payrolls (NFP) report. Despite the softer US Dollar and lower bond yields providing some support, technical indicators suggested a cautious outlook for silver, with resistance at $67.83 and support at $62.81 [3].
Market participants across asset classes are now focused on the upcoming US August employment report, with consensus estimates projecting a 56,000 increase in Nonfarm Payrolls and an unchanged unemployment rate at 4.1% [2][4].
CONCLUSION
The US Dollar's decline, triggered by dovish Fed commentary and shifting rate hike expectations, has led to notable moves in global currencies and commodities. Both the New Zealand and Australian Dollars strengthened, while silver prices remained cautious ahead of key US employment data. Market sentiment remains data-dependent, with the upcoming NFP report expected to provide further direction.