[MARKET ANALYSTS] DXY subdued, G10s tilt higher, Antipodeans outperform ahead of expected RBA hike

DXY marginally softened overnight and continued its modest weakness throughout the European morning, as it took a breather after recently reclaiming the 100.00 status and with participants bracing for a busy schedule of central bank updates, while geopolitics remained in focus with President Trump seeking a coalition to reopen the Strait of Hormuz and is said to also be weighing seizing Iran's Kharg Island, which officials said would require US troops on the ground. Furthermore, Trump warned NATO and called for China to help with the reopening of the Strait of Hormuz, as well as signalled that they could delay the Trump-Xi summit. DXY resides in a narrow 100.18-100.48 range vs Friday’s 99.59-100.54 parameter. On Wednesday, the FOMC is expected to keep rates unchanged at 3.50-3.75% in March. Money markets do not expect a rate cut before Q4 2026, but pricing may have been influenced by a rise in short-term yields after the recent energy price surge stemming from the Middle East conflict, which is lifting inflation expectations.
EUR/USD rebounds from around a 7-month low amid a softer dollar, although the single currency remained beneath the 1.1500 handle (currently within 1.1414-1.1456) amid quiet weekend newsflow from the bloc and with US President Trump warning that NATO faces a ‘very bad future’ if allies fail to help the US in Iran. The pair is well within Friday’s 1.1411-1.1530 range. On Thursday, the ECB is expected to leave rates unchanged at 2.0%. This has been widely expected for some time, even before the surge in oil prices. In response to higher energy prices, year-end pricing has shifted in a more hawkish direction, with markets now fully pricing in a 25bp hike and a near 50-50 chance of 50bps before 2027.
GBP/USD regains some composure amid the softer Buck, and after sliding to a year-to-date low and with UK ministers to set out a GBP 50mln package for households hit by the Iran war energy shock, while the UK is also prepared to explore an EU tuition fee cut as part of efforts to reset post-Brexit relations. On Thursday, the BoE is expected to maintain the Bank Rate at 3.75%, as recent energy price movements have, despite being somewhat pared back at the time of writing, sparked a hawkish reassessment of the UK’s pricing backdrop.
USD/JPY is choppy amid a lack of data releases from Japan to start the week and with comments from Japanese Finance Minister Katayama, who said they are prepared to take decisive steps on FX. USD/JPY trades within 159.17-159.75, within Friday’s 159.01-159.76 range. The BoJ this week is expected to refrain from policy adjustments at its two-day meeting next week, with a recent Reuters poll showing all 64 economists surveyed unanimously forecast the BoJ will keep rates unchanged at 0.75%. Money markets currently price a 100% likelihood the central bank remains on hold, although 60% expect a hike by the end of June.
Antipodeans outperform, with NZD/USD the outpacing despite mixed data releases, while AUD/USD reclaimed the 0.7000 handle overnight ahead of tomorrow's RBA policy decision in which the central bank is widely expected to deliver a back-to-back hike.