FX Markets Shift on Fed Easing Bets as Oil and Aussie Dollar Find Support | 23rd December 2025

FX Reacts to Rates

Global FX markets traded with a reactive tone as expectations of Federal Reserve easing continued to shape currency flows. The US Dollar softened across several pairs, allowing USD/CAD to slip below 1.3750 as firmer oil prices supported the Canadian Dollar. Sterling pushed to fresh multi-week highs amid thinning holiday liquidity, while the Yen found renewed strength on speculation of potential Japanese intervention, prompting a pullback in EUR/JPY. Meanwhile, the Australian Dollar outperformed after RBA meeting minutes reinforced concerns over persistent inflation, lending support to the currency despite broader market caution.

USD/CAD Forecast

Current Price and Context

USD/CAD slipped below the 1.3750 level as expectations for Federal Reserve easing weighed on the US Dollar. At the same time, firmer oil prices provided support to the Canadian Dollar, reinforcing downside pressure on the pair.

Key Drivers

Geopolitical Risks: Energy-related geopolitical risks continue to support crude prices, indirectly benefiting the CAD.

US Economic Data: Softer US data has reinforced bets on Fed rate cuts.

FOMC Outcome: Expectations of policy easing are eroding the Dollar’s yield advantage.

Trade Policy: No immediate trade developments affecting the pair.

Monetary Policy: The BoC’s cautious stance contrasts with a more dovish Fed outlook.

Technical Outlook

Trend: Bearish in the near term.

Resistance: 1.3800, then 1.3860.

Support: 1.3720 followed by 1.3650.

Forecast: Further downside is possible if oil prices remain supported.

Sentiment and Catalysts

Market Sentiment: CAD-positive.

Catalysts: Oil price movements and Fed commentary.

WTI Crude Oil Forecast

Current Price and Context

WTI is consolidating below the $58.00 mark after touching a one-week high. While upside momentum has slowed, downside appears limited amid supportive macro and geopolitical factors.

Key Drivers

Geopolitical Risks: Ongoing geopolitical tensions continue to underpin oil prices.

US Economic Data: Softer growth expectations may temper demand outlook but also support policy easing.

FOMC Outcome: Fed easing expectations support broader commodity prices.

Trade Policy: No fresh trade-related catalysts impacting crude.

Monetary Policy: Easier financial conditions could bolster energy demand.

Technical Outlook

Trend: Sideways to mildly bullish.

Resistance: $58.80, then $60.00.

Support: $56.80 followed by $55.50.

Forecast: Price is likely to remain supported unless risk sentiment deteriorates sharply.

Sentiment and Catalysts

Market Sentiment: Cautiously constructive.

Catalysts: Inventory data and geopolitical headlines.

GBP/USD Forecast

Current Price and Context

GBP/USD has climbed to ten-week highs as the US Dollar softened and holiday-thinned liquidity amplified price moves. Sterling remains supported by resilient UK data and a relatively steady BoE outlook.

Key Drivers

Geopolitical Risks: Limited direct impact on sterling at present.

US Economic Data: Weaker US data has pressured the Dollar.

FOMC Outcome: Fed easing expectations favor GBP/USD upside.

Trade Policy: Stable UK trade environment offers no major headwinds.

Monetary Policy: The BoE’s cautious stance contrasts with Fed dovishness.

Technical Outlook

Trend: Bullish but stretched.

Resistance: 1.3450, then 1.3520.

Support: 1.3350 followed by 1.3280.

Forecast: Gains may slow as liquidity thins further.

Sentiment and Catalysts

Market Sentiment: Constructive but cautious.

Catalysts: US data surprises and BoE commentary.

EUR/JPY Forecast

Current Price and Context

EUR/JPY retreated toward the 184.00 area as the Japanese Yen rebounded on speculation of potential official intervention. The move reflects renewed caution around excessive Yen weakness.

Key Drivers

Geopolitical Risks: Intervention risk remains a key driver for Yen crosses.

US Economic Data: Indirect influence via global risk sentiment.

FOMC Outcome: Fed easing expectations reduce carry trade appeal.

Trade Policy: No immediate trade-related impacts.

Monetary Policy: Divergence between ECB policy and Japan’s gradual normalization remains in focus.

Technical Outlook

Trend: Pullback within a broader uptrend.

Resistance: 185.20, then 186.50.

Support: 183.50 followed by 182.00.

Forecast: Further consolidation is likely as traders monitor intervention signals.

Sentiment and Catalysts

Market Sentiment: Cautious toward Yen crosses.

Catalysts: Japanese official comments and risk sentiment shifts.

AUD/USD Forecast

Current Price and Context

AUD/USD advanced after RBA meeting minutes highlighted persistent inflation pressures, reinforcing the case for a prolonged restrictive stance. The move was supported by a softer US Dollar.

Key Drivers

Geopolitical Risks: Global uncertainty limits aggressive risk-taking.

US Economic Data: USD softness provides near-term support.

FOMC Outcome: Fed easing bets narrow yield differentials.

Trade Policy: China-related trade dynamics remain a medium-term risk.

Monetary Policy: RBA’s inflation concerns support the Aussie.

Technical Outlook

Trend: Stabilizing with upside bias.

Resistance: 0.6800, then 0.6850.

Support: 0.6700 followed by 0.6650.

Forecast: Further gains possible if USD weakness persists.

Sentiment and Catalysts

Market Sentiment: Moderately bullish on AUD.

Catalysts: RBA communication and US macro data.

Wrap-up

As markets head into the holiday period, price action is increasingly being driven by policy expectations and selective catalysts rather than broad risk appetite. Fed easing bets continue to weigh on the US Dollar, while commodity-linked currencies and those supported by hawkish central bank signals are finding modest tailwinds. With liquidity set to thin further, traders may remain cautious, as even modest headlines could trigger outsized moves across FX and commodity markets.

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