US FX WRAP: Dollar trims ISM Manufacturing strength seen on Monday; AUD outperforms after hawkish RBA hike

Analysis details (20:20)

The Dollar was broadly weaker against major peers, trimming the strength seen after Monday's strong ISM Manufacturing PMI reading. The dollar was briefly weighed further vs EUR, GBP, and JPY on geopolitical updates, whereby the US military shot down an Iranian drone that approached USS Lincoln in Arabia, an update that followed reports of an Iranian gunboats approached a US oil tanker in the Strait of Hormuz early Tuesday and ordering it to stop. The risk-off tone in US equities, likely kept a floor to USD weakness, with US Treasuries benefiting in a flight to safety. Aside from the above, developments were light as the US House has approved funds to end the government shutdown, which may mean the delayed JOLTS (Dec) and NFP (Jan) reports that were originally due this week may be rescheduled as early as next week. 

G10 FX gains were led by Antipodes amid the renewed risk-appetite for precious metals. Also supportive for AUD was the hawkish RBA hike, namely, hiking rates by 25bps to 3.85% whilst stating that inflation is likely to remain above target for some time and that broad measures of wage growth continue to be strong. Governor Bullock offered no forward guidance. ING writes that with this hiking profile priced in and our bias for a slightly stronger USD, a gradual unwinding of this post-RBA rally looks more likely than a re-test of last week’s 0.7094 high. Currently, AUD/USD trades ~ 0.7008

JPY lagged in the G10 space ahead of the Lower House election this Sunday. Overnight, Japanese Finance Minister Katayama clarified PM Takaichi’s weekend remarks, noting the PM spoke about FX effects in general, not specifically favouring a weak JPY. USD/JPY traded between 155.29-156.08.

03 Feb 2026 - 20:20- ForexUS Research- Source: Newsquawk