The below key drivers are likely to impact investor risk sentiment and FX markets in June:
- Geopolitical tensions and higher oil prices are driving risk aversion, supporting the US dollar and weighing on risk-sensitive currencies like AUD and NZD.
- Central bank decisions and interest rate expectations are in focus, with upcoming policy meetings shaping currency direction amid ongoing inflation concerns.
- US dollar strength and uneven global growth are dominating FX markets, as strong US data contrasts with softer or uncertain outlooks elsewhere.
EUR | Euro
The euro’s early gains faded as global tensions and inflation concerns strengthened the US dollar, with uncertainty likely to limit any support from upcoming interest rate decisions.
The euro saw moderate volatility at the start of May with EURUSD at US$1.1732, rising to a peak of US$1.1797. The early gains were driven by somewhat resilient 0.3% Q1 GDP growth in Germany. However, this early optimism was short-lived as the pair began a steady unwinding as spikes in global oil prices owing to the Middle East conflict stoked inflation fears and saw investors rotate back into the US dollar.
EURUSD reached a monthly low on May 21st at US$1.1577 after European Flash Manufacturing and Services Purchasing Managers’ Index (PMI) both came in lower than forecasted at 51.4 and 46.4 respectively. Since then, the pair has moved sideways in a narrow band with little positive outlook on both the data front as well as the geopolitical front. The EU’s Consumer Price Index (CPI) Flash Estimate print on June 2 came in as forecasted at 3.2% (year over year), while Core CPI came in at 2.5%, only marginally above the forecasted 2.4% (year over year), both prints not really moving the needle on euro strength. However, EURUSD fell 0.77% on June 5 due to much stronger than expected employment data out of the USA.
Looking ahead, the European Central Bank will meet on June 11 to set interest rates, with the market anticipating a 97% chance of a 25-basis point hike from 2% to 2.25%. This potential hike could strengthen the euro, however, the strength of the gain will likely be curtailed if the Middle Eastern conflict persists.
Expected ranges:
- EURUSD 1.1550–1.1850
- EURGBP 0.8610–0.8750
GBP | Sterling
The pound has been pulled between political uncertainty and global tensions, with recent economic improvements offering some support. Looking ahead, geopolitics and UK politics are likely to remain the key drivers.
At the beginning of May, GBPUSD rose to a peak of US$1.3658 before falling to a low of US$1.3302. The fall was driven by a combination of surging global energy costs, local election instability from Prime Minister Keir Starmer and the Mendelson saga, and safe-haven flows into the US dollar. The pair mildly recovered after this low, hovering between US$1.34-US$1.35, as speculation surrounding Starmer’s leadership cooled and the prospects of a diplomatic solution for the US-Iran conflict increased. Furthermore domestically, the pound saw strength through the IMF raising the UK Growth forecast for 2026 to 1% (up from 0.8%), and lower than expected inflation with a Consumer Prices Index (CPI) print of 2.8%. However, GBPUSD fell 0.63% on June 5 due to much stronger-than-expected employment data out of the USA.
Looking ahead, the Middle Eastern conflict remains a key driver of the pound’s value. Domestically, political turmoil could also drag the pound lower. On June 18, the Makerfield by-election will take place, with Labour leadership hopeful Andy Burnham appearing keen to re-enter parliament. Additionally, on June 18 we will see the next Bank of England interest rate decision. With rates currently at 3.75% and inflation arising from the Middle East conflict trickling through to the UK, higher rates this year are likely. However, Governor Andrew Bailey recently said the bank is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak. Assuming interest rates remain constant, Andy Burnham wins in Makerfield, and the Middle East conflict persists, the GBPUSD could trend down towards US$1.33.
Expected ranges:
- GBPUSD 1.3300–1.3750
- GBPEUR 1.1450–1.1610
AUD | Australian dollar
The Australian dollar held steady as strong commodity exports and local economic support were offset by global uncertainty, a resilient US dollar and concerns about growth in China.
Throughout May, the Australian dollar traded in a relatively tight but uneven range against the US dollar, reflecting a market caught between supportive domestic fundamentals and persistent global uncertainty. After a strong start to the year, AUDUSD largely consolidated between US$0.69 and US$0.72, with rallies toward US$0.72, and dipping toward US$0.70, attracting consistent buying interest. By month-end, the pair was hovering around the US$0.71 handle, leaving it broadly unchanged over the period. A key driver of price action was the evolving RBA–Fed policy dynamic.
The Reserve Bank of Australia (RBA) delivered a 25-basis point rate hike in early May, reinforcing Australia’s yield advantage and initially supporting the currency. However, this was tempered by cautious forward guidance, with policymakers highlighting the risk that tighter conditions could slow domestic growth. This balance between hawkish policy action and a more measured outlook limited the Australian dollar’s ability to extend gains. At the same time, the US dollar remained resilient, underpinned by its safe-haven appeal during periods of geopolitical tension and lingering concerns around global growth. These intermittent risk-off episodes saw capital flow back into the USD, capping upside momentum in AUDUSD and reinforcing the broader range-bound environment. From a structural perspective, the Australian dollar continued to benefit from firm commodity prices, with key exports such as iron ore and gold providing underlying support. However, uncertainty around China’s economic outlook and external demand conditions limited the extent of these gains.
Expected ranges:
- AUDUSD 0.7018–0.7201
- AUDEUR 0.6098–0.6176
- AUDGBP 0.52656–0.53469
- AUDNZD 1.2114–1.2187
NZD New Zealand dollar
The New Zealand dollar stayed range-bound as global uncertainty and a strong US dollar balanced out local support from steady interest rates and commodity exports.
The New Zealand dollar delivered a modest but steady performance against the US dollar through May, trading within a relatively tight range as global macro forces outweighed domestic drivers. NZDUSD spent most of the month fluctuating between approximately US$0.58 and US$0.60, with the pair briefly testing highs just below US$0.60 while consistently finding support towards US$0.58. By month-end, the NZD was trading closer to US$0.597, marking a slight appreciation over the period but ultimately reinforcing a broader sideways trend.
Price action throughout May was largely shaped by global risk sentiment, with the New Zealand dollar behaving as a typical pro cyclical currency. Periods of improving risk appetite, linked to stabilising equity markets and easing geopolitical tensions, supported gains in the NZD. Intermittent risk-off episodes drove flows back into the US dollar, capping upside momentum. Monetary policy also played a role, albeit a secondary one. The Reserve Bank of New Zealand held its cash rate steady at 2.25% during its May meeting, but the decision was notably split and accompanied by guidance signalling the potential for future rate hikes. This reinforced a mildly hawkish outlook and provided near-term support to the NZD, although the lack of immediate policy action limited a stronger breakout.
Externally, US dollar dynamics remained a key counterbalance. Expectations around US inflation and Federal Reserve policy continued to underpin the USD, particularly during periods of uncertainty, preventing NZDUSD from establishing a clear upward trend. The NZD also drew intermittent support from commodity-linked demand, particularly in agricultural exports, though these influences were often overshadowed by broader global growth concerns and geopolitical developments.
Expected ranges:
- NZDUSD 0.5874–0.5994
- NZDEUR 0.5021–0.5142
- NZDGBP 0.4338–0.4455
- NZDAUD 0.8206–0.8345
USD | United States dollar
The US dollar gained strength on the back of solid economic data and expectations of higher interest rates, though any signs of slowing growth could ease its momentum.
The US dollar has strengthened in the last month against most major currencies, supported by resilient economic data and rising expectations that the Federal Reserve (Fed) will likely keep interest rates higher for longer. The USD gained against the euro, British pound, Canadian dollar, and Japanese yen, with USDJPY moving back above the 160 level.
A key catalyst was the May non-farm payrolls report, which showed the US economy added 172,000 jobs, nearly double market expectations, while the unemployment rate held steady at 4.3%. The stronger jobs release reinforced confidence in US economic growth and reduced expectations for near-term Federal Reserve interest rate cuts.
Looking ahead, the US dollar is likely to remain well supported if economic data continue to outperform and inflation remains sticky. However, any signs of slowing growth or a shift toward Fed easing could trigger a modest pullback against major peers.
Expected range:
- DXY 99.751–100.214
JPY | Japanese yen
The Japanese yen faced mixed pressures, but stronger economic growth and ongoing inflation have increased expectations of further policy changes that could support the currency.
Japan’s economy remained resilient in May, with persistent inflation reinforcing expectations of further BoJ normalization. The Japanese yen experienced a mixed month in May as investors balanced softer headline inflation against improving economic fundamentals and growing expectations for additional Bank of Japan (BoJ) policy tightening. While the yen remained under pressure from elevated energy prices and interest-rate differentials, stronger economic data improved confidence in Japan’s outlook and reinforced expectations that the BoJ may continue its gradual path toward policy normalisation.
Economic data released during the month was broadly positive. Japan’s economy expanded at an annualized rate of 2.1% in the first quarter, supported by stronger exports, firmer consumer spending, and steady business investment. Retail sales also exceeded expectations, rising 1.3% month-over-month in April as demand for vehicles, household goods, and other durable products remained solid. Consumer confidence improved in May, suggesting households were becoming more optimistic despite higher living costs. Strong demand for technology and AI-related exports also helped offset concerns surrounding higher energy prices and global uncertainty.
Inflation developments were more mixed. Tokyo core CPI slowed to 1.3% year-over-year in May, largely reflecting government subsidies for fuel, utilities, and education expenses. However, underlying inflation remained relatively firm, while wholesale inflation accelerated sharply to 4.9%, highlighting the impact of higher energy prices and yen weakness.
Looking ahead, resilient economic growth, persistent inflationary pressures, and rising anticipation of additional BoJ interest rate hikes could provide greater support for the yen, suggesting that near-term volatility is likely to remain elevated.
Expected range:
- USDJPY 150—165
CAD | Canadian dollar
The Canadian dollar softened slightly amid trade uncertainty, but strong employment and firm oil prices could provide support if economic conditions and trade discussions improve.
Over the past month, the Canadian dollar has traded in a relatively narrow range but softened modestly against the US dollar, reflecting uncertainty around North American trade discussions and mixed economic signals.
A key support for the currency came from Canada’s surprisingly strong May labour market report; showing employment rising by 88,000 jobs, far above expectations of 10,000, while the unemployment rate fell to 6.6% from 6.9%. Full-time employment surged by 154,000 positions, reversing much of the weakness seen earlier this year. In contrast, the US added a stronger-than-expected 172,000 jobs in May, helping maintain the US dollar’s strength.
Looking ahead, the outlook for the CAD is cautiously constructive. Firm oil prices, a resilient labour market, and potential progress on trade negotiations could support appreciation toward rates seen earlier this year. However, slower economic growth and renewed trade tensions remain key downside risks.
Expected range:
- CADUSD 0.7163–0.7262
SGD | Singapore dollar
The Singapore dollar stayed broadly stable as global uncertainty supported the US dollar, while strong local economic conditions and policy support helped limit bigger moves.
Over the past month, USDSGD movement was largely driven by the greenback, grinding lower toward 1.2651 early in the month, before bouncing back to 1.28 recently. This rebound stems from a pronounced risk-off sentiment favouring the USD, triggered by stalled US-Iran diplomatic negotiations and elevated oil prices fuelling inflation fears.
Domestically, Singapore’s landscape remains robust. The Ministry of Trade and Industry (MTI) reported Q1 2026 GDP growth at a strong 6.0% year-on-year, maintaining the full-year outlook at 2.0% to 4.0%. April’s headline CPI landed at 1.8% year-on-year, down 0.3% month-on-month. The Monetary Authority of Singapore (MAS) maintained its tight policy stance from April, keeping a steep slope for the Singapore Dollar Nominal Effective Exchange Rate Index (S$NEER). Meanwhile, the gap between Singapore and US swap rates widened to a record. This trend is expected to persist as foreign safe-haven inflows keep local liquidity ample, while the Federal Reserve (Fed) faces pressure to raise rates due to high energy costs.
Driven by Singapore’s political stability and economic resilience amid the Middle East conflict, some analysts forecast an unscheduled MAS tightening in July.
Looking ahead, USDSGD is expected to remain largely rangebound. Upward moves will likely be capped by the MAS’s appreciating S$NEER path, which provides structural support for the local currency. However, significant downside is also limited as the US Federal Reserve adopts a more neutral bias ahead of the June 18 Federal Open Market Committee (FOMC) meeting under new Chair, Kevin Warsh.
Expected range:
- USDSGD 1.2650–1.2900
HKD | Hong Kong dollar
The Hong Kong dollar remained stable against the US dollar, supported by steady economic growth and its currency peg, with only limited movement expected despite global uncertainty.
Over the past month, the USDHKD pair fluctuated modestly within the 7.8262-7.8390 band. While remaining safely away from the 7.8500 weak-side convertibility ceiling, a firmer underlying trend has emerged. This movement stems from a global defensive tilt toward the greenback, supported by hawkish shifts in Federal Reserve rate expectations and an oil-driven inflation impulse that has limited any downward momentum for the pair.
Hong Kong’s fundamentals show a steady, dual-speed recovery. Driven by a 17.7% surge in investment and resilient trade, Q1 2026 real GDP expanded by a strong 5.9% year-on-year. However, escalating energy prices pushed the government’s full-year inflation forecast up to 2.6%.
Under the Linked Exchange Rate System (LERS), the Hong Kong Monetary Authority (HKMA) kept its base rate unchanged. While HKD interest rates dipped earlier in the quarter, widening the USDHKD spread, interbank liquidity remained stable. Both 1-month and 3-month Hong Kong Interbank Offered Rates (HIBOR) track global benchmarks closely enough to suppress aggressive carry-trade imbalances.
Looking ahead, USDHKD is likely to maintain its stable, rangebound posture well within the statutory 7.75–7.85 framework. Market focus centers on US monetary policy ahead of the June Federal Open Market Committee (FOMC) meeting. Although localized fund flows from upcoming IPO activity and seasonal corporate dividend payouts may cause transient HIBOR spikes, the LERS equilibrium will likely remain intact, keeping the pair comfortably anchored near current levels.
Expected range:
- USDHKD 7.8250-7.8500
The global impact of Japan’s rate shift. Read the article.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
