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US Dollar Faces Higher Hurdles for Further Gains
Confirmed
In Short: Financial markets remain uncertain as the US Dollar struggles to maintain momentum post-FOMC, with experts suggesting stronger data or higher yields are needed for further gains.
Financial markets are in a state of uncertainty as the final weeks of Q3 approach, with volatility and geopolitical tensions continuing to affect trading. The US Dollar Index (DXY) has maintained a firmer tone following the Federal Open Market Committee's (FOMC) 25 basis point interest rate hike and a projected higher rate path, supported by elevated US Treasury yields.
However, OCBC’s Christopher Wong notes that the hurdle for another meaningful leg higher in the USD may be higher after last week's repricing. Wong emphasizes that further USD upside now likely requires another leg higher in yields or stronger US data, with key resistance around 100.32–100.60 and support near 99.90–99.20 guiding near-term price action.
Wong adds that daily momentum is bullish, though recent rises in RSI showed signs of moderation near overbought conditions. Last Friday’s price pattern indicated that the push higher is losing some conviction around resistance, consistent with near-term upside fatigue but short of calling it a reversal.
The AUD/USD pair holds steady above 0.7100 in the Asian session on Monday, as the US Dollar stalls its modest pullback from the highest level since late July amid persistent geopolitical uncertainties. Bets on another Reserve Bank of Australia (RBA) rate hike continue to underpin the Australian Dollar ahead of the Trump-Xi Summit.
US bond yields remain near multi-year highs ahead of the FOMC meeting and oil-driven inflation risks, supporting the US Dollar and weighing on currency pairs. USD/JPY continues to push higher toward 155.00 early Tuesday, looking for more upside as traders await the FOMC and BoJ meetings this week.
During the press conference, Fed Chair Kevin Warsh restated his concerns over inflation, noting that too many categories of products and services were showing annualized price gains above 3% on a 6- and 12-month basis. Warsh flagged further increases in borrowing costs in the coming months, sending the US Dollar higher and weighing on non-yielding bullion.
Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive. They note that “higher Treasury yields and the stronger USD continue to offset some of the safe-haven support from geopolitical risks,” limiting the metal’s ability to capitalize on risk-off sentiment.
More broadly, we continue to see upside risks for the dollar, with oil prices likely to become the predominant driver in the short term given the quieter US data calendar. Moderating oil prices have taken the edge off the dollar’s post-FOMC momentum.
This week, US PMIs and Fed communication could matter for whether the post-FOMC USD rebound has further room to run.
Background
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What's confirmed
- Financial markets are in a state of uncertainty as the final weeks of Q3 approach, with volatility and geopolitical tensions continuing to affect trading. The US Dollar Index (DXY) has maintained a firmer tone following the Federal Open Market Committee's (FOMC) 25 basis point interest rate hike and a projected higher rate path, supported by elevated US Treasury yields.
- However, OCBC’s Christopher Wong notes that the hurdle for another meaningful leg higher in the USD may be higher after last week's repricing. Wong emphasizes that further USD upside now likely requires another leg higher in yields or stronger US data, with key resistance around 100.32–100.60 and support near 99.90–99.20 guiding near-term price action.
- Wong adds that daily momentum is bullish, though recent rises in RSI showed signs of moderation near overbought conditions. Last Friday’s price pattern indicated that the push higher is losing some conviction around resistance, consistent with near-term upside fatigue but short of calling it a reversal.
- The AUD/USD pair holds steady above 0.7100 in the Asian session on Monday, as the US Dollar stalls its modest pullback from the highest level since late July amid persistent geopolitical uncertainties. Bets on another Reserve Bank of Australia (RBA) rate hike continue to underpin the Australian Dollar ahead of the Trump-Xi Summit.
- US bond yields remain near multi-year highs ahead of the FOMC meeting and oil-driven inflation risks, supporting the US Dollar and weighing on currency pairs. USD/JPY continues to push higher toward 155.00 early Tuesday, looking for more upside as traders await the FOMC and BoJ meetings this week.
- During the press conference, Fed Chair Kevin Warsh restated his concerns over inflation, noting that too many categories of products and services were showing annualized price gains above 3% on a 6- and 12-month basis. Warsh flagged further increases in borrowing costs in the coming months, sending the US Dollar higher and weighing on non-yielding bullion.
- Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive. They note that “higher Treasury yields and the stronger USD continue to offset some of the safe-haven support from geopolitical risks,” limiting the metal’s ability to capitalize on risk-off sentiment.
- More broadly, we continue to see upside risks for the dollar, with oil prices likely to become the predominant driver in the short term given the quieter US data calendar. Moderating oil prices have taken the edge off the dollar’s post-FOMC momentum.
- This week, US PMIs and Fed communication could matter for whether the post-FOMC USD rebound has further room to run.
What's still developing
- On the topside, initial resistance is located at the 100-day MA around $4,325, with the Bollinger mid-line reinforcing a higher barrier near $4,440 and the upper band further up around $4,685, levels that would need to be reclaimed to ease the current bearish tone.