US

The USD index (DXY) is directionless near the middle of its 96.00-100.00 range that’s held since June. We expect this range to hold in the near-term because USD is trading in line with rate differentials and there are no immediate catalysts to materially shift major central bank rate expectations. Structurally, we are bearish USD because of fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Fed.

The Fed can afford to be patient before resuming easing. The Conference Board Consumer Confidence index improved more than expected in February and consumers are less pessimistic about the labor market. The labor differential index (jobs plentiful minus jobs hard to get) ticked up to 7.4 vs. 6.8 in January while job expectations over the next six months (more jobs-fewer jobs) rose to -10.4 vs. -13.9 in February.

Most Fed officials are throwing cold water on rate cuts. Chicago Fed President Austan Goolsbee (2027 voter) noted that “with core inflation hovering near 3% and unemployment steady, the case for patience remains strong.” Boston Fed President Susan Collins (non-voter) stressed “I think that it’s quite likely that it will be appropriate to hold the current range for some time,” while Richmond Fed President Tom Barkin (2027 voter) highlighted that “monetary policy is currently well-positioned for risks.”

Kansas City Fed President Jeff Schmid (non-voter) and St. Louis Fed President Alberto Musalem (non-voter) speak today. Recall, Schmid voted to keep rates on hold at both the October and December 2025 FOMC meetings when the majority favored a cut.

JAPAN

JPY and longer-term JGBs plunge. Japanese Prime Minister Sanae Takaichi nominated two new Bank of Japan (BOJ) policy board members who are seen as dovish. Aoyama Gakuin and Toichiro Asada are the government’s candidates to replace outgoing BOJ board members Asahi Noguchi and Junko Nakagawa. Noguchi’s five-year term ends on March 31 and Nakagawa’s finishes on June 29. The appointments require approval of both houses of the Diet.

Regardless, the BOJ has room to normalize rates closer to the mid-point of its neutral policy range estimate (between 1.00% and 2.50%) which is JPY supportive. Japan’s output gap is project to widen moderately within positive territory, and the composite PMI indicate a solid rise in total private sector activity.

AUSTRALIA

AUD/USD edged up just shy of its recent cyclical high at 0.7147. Australia inflation ran hot in January, supporting the RBA’s hawkish stance. Headline CPI printed at 3.8% y/y for a second straight month (consensus: 3.7%) while the trimmed mean CPI rose to 3.4% y/y (consensus: 3.3%) vs. 3.3% in December. The RBA projects inflation to peak in Q2 2026 – with trimmed mean CPI at 3.7% and headline CPI at 4.2% – before moderating to a little above the midpoint of the 2–3% range by mid-2028.

For reference, the monthly CPI is Australia’s primary measure of headline inflation, and the RBA analyzes underlying inflation measures constructed using the monthly CPI. However, the RBA will continue to focus on measures of underlying inflation from the quarterly CPI for a period. Australia Q1 CPI data is due April 29, just ahead of the RBA May 5 policy rate decision where a 25bps hike to 4.10% is virtually fully priced-in. Bottom line: diverging policy between the RBA and Fed supports the uptrend in AUD/USD.

THAILAND

USD/THB bounced off key support at 31.00. Bank of Thailand (BOT) unexpectedly delivered a back-to-back 25bps policy rate cut to 1.00% (no change was expected). The BOT Committee voted 4 to 2 to cut the policy rate by 25bps. Two members voted to maintain the policy rate at 1.25%.

Importantly, the Committee expressed “concern over signs of exchange rate misalignment from economic fundamentals,” adding that the “appreciation of Thai baht has tightened financial conditions for exporters, particularly for products facing intense price competition and low profit margins.” Nevertheless, Thailand’s relatively high positive real rates and favorable balance of payments backdrop continue to underpin the uptrend in THB.