US Dollar: Post-FOMC gains face higher hurdle – OCBC

Christopher Wong of OCBC highlights that the US Dollar Index (DXY) has maintained a stronger stance following the Federal Open Market Committee's 25 basis point hike and a higher rate outlook, bolstered by surging U.S. Treasury yields. However, he points out that sustained USD gains now likely depend on further yield climbs or robust U.S. economic data, with critical resistance levels positioning around 100.32–100.60 and support near 99.90–99.20 guiding short-term price movements.

The Federal Reserve's renewed tightening stance and persistently high U.S. Treasury yields continue to provide some support to the USD. Nevertheless, the hurdle for additional significant gains may become steeper after last week's price repricing. This week, U.S. Purchasing Managers' Index (PMI) reports and Federal Reserve statements could play a pivotal role in determining if the post-FOMC rebound for the USD has additional upward potential.

As of the latest close, the DXY stands at 100.22, with the daily momentum displaying bullish tendencies, although recent RSI readings suggest the market is nearing overbought conditions. The price chart from last Friday indicates the upward momentum is struggling with resistance, suggesting some near-term fatigue but falling short of a definitive reversal.

Observers are advised to monitor price action closely for any bearish follow-through. Key resistance levels identified are at 100.32 (23.6% Fibonacci retracement from the 2026 low to high) and 100.60, while support is found at 99.90 (50-day moving average, 100-day moving average), 99.40 (38.2% Fibonacci level, 21-day moving average), and 99.20 (200-day moving average).

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AUD/USD remains stable above 0.7100 during the Asian session on Monday as the U.S. Dollar struggles to sustain its slight pullback from its peak since late July, exhibiting resistance to further decline amidst ongoing geopolitical uncertainties. The People's Bank of China (PBOC) maintaining its current stance on Loan Prime Rates adds to the subdued tone for the Australian Dollar.

However, expectations of another rate hike by the Reserve Bank of Australia (RBA) continue to lend support to the AUD ahead of the Trump-Xi Summit. The USD/JPY pair is also showing signs of easing below 157.00 in Asia on Monday, pressured by a slight appreciation of the Japanese Yen amid potential intervention risks following the Bank of Japan's rate review last Friday.

Traders are on edge due to ongoing geopolitical tensions between Russia and Ukraine and in the Middle East, which has led to a modest increase in the Japanese Yen. Consequently, the U.S. Dollar's temporary respite helps to curb its downside pressure. Gold maintains its upward trajectory throughout the first half of the European session and is currently trading around $4,350, down over 0.50% for the day.

Despite the recent decline, the precious metal holds above a six-week low reached last Wednesday as traders await further developments regarding the Middle East crisis and its impact on inflation expectations. This development will play a crucial role in influencing interest rate expectations and, consequently, affect the non-yielding asset class.

Financial markets find themselves in a precarious position as we approach the final weeks of Q3, with uncertainty and volatility persisting, though the price of oil continues to decline, and stock markets in Europe and the U.S. are poised to open higher later on Monday. Market concerns are primarily concentrated in sovereign bonds, and recent hikes in U.S. and European yields, following the Bank of Japan's decision to raise its short-term interest rate target to 1.25% from 1.00% in a 7-2 vote, signify a step towards normalizing monetary policy, largely in line with earlier market expectations.