Many remain hopeful of a resolution in the Middle East even though the hostilities are still flaring up and Israel appears to have launched a new offensive in Lebanon. Oil prices are around $3 lower and equity markets mostly higher outside of Japan, China, and Hong Kong.
The dollar is mixed. Lifted by a hawkish hold by the Reserve Bank of New Zealand, the New Zealand dollar leads the G10 currencies with a nearly 0.75% gain. On the other hand, the soft Australian CPI has elicited a dovish response in the interest rate market and dragged the Australian dollar down around 0.40%, the heaviest of the G10 currencies. The market took the yen slightly lower, but the market to may hesitate ahead of JPY159.50, on guard of intervention.
Prices
G10
• The euro traded a little heavier yesterday and traded down to almost $1.1615 after being turned back from nearly $1.1655 on Monday. It is trading quietly in the quarter-cent range below $1.1650 today. A move above $1.1660 signals a test a formidable resistance in the $1.1680-85 area.
• Despite the softer US yields, the yen reached its lowest level since reported intervention on April 30. The dollar approached JPY159.40 in the North American session yesterday and settled firmly. It made a marginal new high today near JPY159.45. In the first 18 sessions this month through yesterday, the yen has weakened in all but four, and that includes May 6 when the BOJ may have intervened again. Yet, one-month implied volatility slumped to a four-year low today, slightly below 6.30%. Still, the market is tempting official intervention.
• Sterling gave back Monday’s gains in full yesterday and traded slightly below Monday’s low to reach $1.3435 in North America. It remains pinned near yesterday’s trough today. It has been unable to push above $1.3460. Nearby support is in the $1.3400-20 area. A break may spur a move to $1.3380 initially and possibly last week’s low (~$1.3300).
• The Canadian dollar continued to be trapped near one-month lows in consolidative trading on Monday and Tuesday and made a marginal new low today. The US dollar reached CAD1.3825 before last weekend and CAD1.3835 today, a new high since April 13. The next technical target is the CAD1.3870-80.Meanwhile, the greenback has not traded below CAD1.3795 so far this week.
• After reaching a five-session high on Monday, slightly above $0.7180, the Aussie consolidated yesterday in quiet turnover. Light buying materialized near $0.7155. Without being above to push above the 20-day moving average (~$0.7185 today), it appears vulnerable. And today’s softer than expected CPI provided the catalyst. It was sold to nearly $0.7135 to approach support may be around $0.7130. A break could spur a retest on last week’s low near $0.7080. Over in New Zealand, the hawkish hold by the RBNZ sent the New Zealand dollar from yesterday’s $0.5830 area nearly $0.5890. Near-term potential extends to $0.5900-25.
EM
• The dollar consolidated within its well-worn ranges against the Mexican peso yesterday. Most of the price action over the past seven sessions has taken place in the range set on May 15 (~MXN17.21-MXN17.40). It is in a roughly MXN17.2855-MXN17.3225 range today. The greenback is also moving broadly sideways against the Brazilian real (~BRL4.99-BRL5.06). Colombia holds its presidential election on May 31. The polls warn that the pendulum of political sentiment has swung hard from the current left governor to the National Salvation Party on the far right. The dollar recovered from a five-year low in late April near COP3530 to two-and-half month high in the middle of May (~COP3821). It was sold a little below COP3614 yesterday, a new low for the month, before it rebounded to COP3685.50. It posted a potential key reversal, suggesting potential for more dollar gains against ahead of the weekend vote.
• The dollar was confined to Monday’s range against the offshore yuan yesterday. It slipped to a marginal new three-year low today, slightly below CNH6.7785. The CNH6.80 offers initial resistance. The PBOC, which set the dollar’s reference rate a three-year low yesterday (CNY6.8288) fixed it slightly higher today (CNY6.8291).
• The dollar settled on session highs yesterday against the Indian rupee (INR95.6850), which also closed the gap created by Monday’s lower dollar opening. Follow-through dollar buying lifted it to INR95.7960 today before stalling. It settled near INR95.6960.
Other Markets
• The S&P 500 and Nasdaq set record highs yesterday, but drifted back toward opening levels, perhaps encouraged by the trend higher in oil prices yesterday as the fragility of the ceasefire was underscored. Chips helped South Korea’s Kospi and Taiwan’s Taiex led the regional equities today with around 2.25% and 1.7% gains, respectively. Japan, China, Hong Kong indices traded with a heavier bias, while Australia and New Zealand advanced. After snapping a six-day advancing streak yesterday, Europe’s Stoxx 600 is rising again today. US index futures are trading ~0.30-0.50% better.
• Benchmark 10-year yields are lower. The 10-year JGB eased about 2.5 bp to slightly below 2.68%. European yields are off 2-4 bp, though the 10-year Gilt yield is down slightly more than five basis points. The 10-year US Treasury yield is near 4.46%, off about 2.5 bp.
• Gold managed to take out Monday’s highs by a less than a dime yesterday and reached a little above $4580 before reversing lower and sliding back below $4485 for the first time in four sessions. It was pushed to almost $4476 today and is near $4486 ahead of the North American session. Last week’s low was slightly below $4454, a level not seen since late March. Silver reached a six-session high on Monday (~$78.80) and was sold to about $75.50 yesterday. It has stabilized after it fell to about $74.65 today. Last week’s low was near $73.00.
• July WTI dipped below $90 during Monday’s US holiday and recovered. Yesterday’s session high was recorded near midday in NY at $94.70. Recall that last Friday’s low was slightly below $94.75, leaving a small gap open. It is hovering around $90 now after slipping briefly to $89.65. The contract has not settled below $90 since April 24.
Data
• With the focus on the Middle East war, today’s US data, Richmond and Dallas Fed May surveys are unlikely to have much impact. There are four Fed speakers today, but all take place late in the session. The drop in oil prices saw the implied yield of the December Fed funds futures fall seven basis points yesterday to 3.78%. It slipped another 2.5 bp today. Tomorrow, the US reports April personal income and consumption data. The resilience of the US consumer is likely to be reflected in yet another month of consumption growth outstripping income growth. After the CPI and PPI readings, we can be confident of another rise in the headline PCE deflator (~3.8% from 3.5%), while the core edges up (~3.3% vs. 3.2%).
• Mexico’s central bank issues the inflation report today. The minutes from the recent central bank meeting show concern about lack of economic momentum. The somber tone will most likely persist but given the elevated price pressures, the bar to another cut is high.
• Australia reported a less than expected 0.4% rise in April CPI, which given the base effect, allowed the year-over-year rate to slip to 4.2% from 4.6%. The trimmed mean edged up to 3.4% from 3.3%. After three hikes already delivered this year, the futures market anticipates the next in Q4 (~83%), though it has more than a 50% chance of a move in Q3.
• In a 3-3 board vote, the Governor of the RBNZ Breman cast the deciding vote to maintain the current target rates of 2.25%. The swaps market is discounting almost three hikes this year. The central bank’s forward guidance implies at least two hikes this year and three by the middle of next year.
• Japan confirmed machine tool orders are surging. The preliminary estimate showed a 45.1% rise year-over-year. Separately, PPI service inflation eased to 3.0% in April from a revised 3.3% in March, which was initially reported at 3.1%. It peaked at 3.4% last year and 3.7% in 2024.
• China reported industrial profits rose 18.2% year-over-year during the first four months of the year, after 15.5% in Q1. April’s year-over-year rise of 24.7% is the highest since November 2023.
Reviewed by Marc Chandler
on
May 27, 2026
Rating:
