Dollar eases as oil slump lowers yield pressure, Australia rate decision in focus

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Dollar eases on oil, rates

Highlights

Brent crude futures plunged over 7% on Monday, easing inflation concerns and pushing the dollar index to a one-month low at 101.76.
The Reserve Bank of Australia is expected to raise rates by 25 basis points to 4.85% Tuesday, reaching the highest level since December 2008.
Despite dollar weakness from lower oil, risk aversion due to AI-driven stock selloffs and U.S. midterm election tensions continue to support the U.S. currency.

Oil moves and central bank decisions shape trading

As reported by Reuters, the dollar wavers on Tuesday after Brent crude futures tumbled more than 7% on Monday, their sharpest one-day fall in months, as hopes grow for a diplomatic breakthrough between the U.S. and Iran after Tehran says contacts aimed at ending their eight-month war are continuing.

Lower energy prices help to ease inflation concerns and weigh on longer-dated Treasury yields. The benchmark 10-year U.S. Treasury yield is steady at 4.9145%, while the 30-year bond yield is flat at 5.2868%, after both touched their lowest levels in nearly two months in the previous session.

The dollar index, which tracks the currency against peers including the yen and the euro, is last a touch weaker at 101.76 after falling to a one-month low on Monday. The euro edges up to $1.1185, while the Japanese yen is flat at 157.915 per dollar during a local holiday.

Multiple central banks are due to deliver policy statements this week. The Reserve Bank of Australia is expected to raise the official cash rate by 25 basis points to 4.85% on Tuesday, which would mark the highest level since December 2008 and bring total tightening this year to 125 basis points across five increases.

The Australian dollar is little changed at $0.7002, while the New Zealand dollar is flat at $0.5617. Sterling rises 0.05% to $1.3414 after PMI data shows British manufacturers begin the final quarter of 2026 with the strongest output growth in more than two years.

Risk sentiment and election tensions support the greenback

Even with oil-related pressure on the dollar, broader risk aversion limits losses. An AI-driven stock market slump shows little sign of slowing, hurting investor sentiment and offering some support to the U.S. currency.

Tensions around the U.S. midterm elections also loom over markets, reinforcing demand for the dollar as a safe-haven asset. Sim Moh Siong, FX strategist at OCBC, says in a note that oil relief is growing but conviction elsewhere remains thin, adding that cheaper energy is reshaping foreign exchange dynamics while AI concerns and U.S. election risks keep the USD supported.

In the UK, economists polled by Reuters expect the Bank of England to raise Bank Rate to 4.0% from 3.75%, which would be its first increase since August 2023, when inflation is still more than triple the central bank's 2% target.

Our earlier article on the Nasdaq 100’s selloff highlighted how the index slipped under key short- and medium-term moving averages while staying above its long-term trend, keeping traders focused on a near-term range and downside breakout risk. It also noted a structural development for markets: the launch of JQQQ, a blockchain-native fund from Janus Henderson and Centrifuge that expands digital access to Nasdaq-100 exposure even as AI-linked concentration leaves sentiment fragile.

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