ISM Services Beat Powers Dollar Amid Oil Surge

ISM services data beat and oil surge pressure global markets as the Fed holds rates and geopolitical risks mount.

The U.S. service sector outpaced expectations in May, with the ISM Services PMI printing at 54.5 against a consensus forecast of 53.8. The reading confirmed that service-side activity gained momentum during the month, though businesses continued to flag higher input prices throughout the period. That inflationary detail proved consequential: it checked any remaining optimism around Federal Reserve rate cuts and gave the dollar and Treasury yields fresh support into the session close.

Adding to the risk-off tone, crude oil climbed more than 1% to trade in the $95 to $97 per barrel range. The move came as geopolitical conditions in the Middle East deteriorated sharply, with Iran launching ballistic missiles and the U.S. conducting military strikes in response. However, traders responded by building supply-risk premiums back into energy prices, reinforcing the cautious mood that dominated the session.

ISM Services Beat Powers Dollar Amid Oil Surge

The focus heading into the Asia session falls on three key releases: Australia’s trade balance figures, scheduled remarks from Reserve Bank of Australia officials, and China’s foreign exchange reserves data. So, each has the potential to meaningfully shift the Australian dollar, Chinese yuan, Asian equities, gold prices, and broader risk appetite.

The context surrounding Australia’s economy is already fragile. First-quarter GDP growth undershot expectations, calling into question the durability of domestic demand and adding complexity to the RBA’s policy outlook. Consequently, any disappointing trade data or cautious language from policymakers could apply additional downward pressure on the Australian dollar and spread unease across Asia-Pacific markets more broadly.

U.S. Dollar Index (DXY): Employment Beats and Safe-Haven Demand Firm Up the Dollar

Key data today: Unemployment Claims — 12:30 pm GMT

The U.S. dollar maintains a modestly firmer tone, drawing support from two complementary forces. First, ADP private payrolls came in ahead of expectations, reinforcing the case that the U.S. labor market continues to hold up. Second, safe-haven demand is providing additional lift as geopolitical tensions keep investors cautious about risk assets.

Together, these factors strengthen the prevailing view that the Federal Reserve will keep interest rates elevated for an extended period rather than pivot toward easing anytime soon.

FOMC Policy Outlook:

The FOMC broadly expects to hold the federal funds rate at 3.50% to 3.75% at its April 28 to 29, 2026 meeting. With Brent crude hovering around $108 per barrel and energy-driven inflation running well above target, any rate cuts in 2026 appear increasingly unlikely before September at the earliest.

Nonfarm payrolls added 178,000 jobs in March 2026, beating reduced forecasts though partly lifted by strike reversals, and the unemployment rate edged down to 4.3% from 4.4%. Inflation, however, has re-accelerated sharply: CPI rose to 3.3% year-over-year in March from 2.4% in February, driven by a 10.9% monthly spike in energy costs. Core PCE sits at roughly 3.1% or higher. Meanwhile, the Atlanta Fed GDPNow model estimates Q1 2026 growth at just 1.3%, a steep drop from near-5% in Q4 2025. The Fed’s next meeting falls on June 16 to 17, 2026.

24-Hour Bias: Weak Bearish

Gold (XAU/USD): Rising Dollar and Yield Pressure Weigh on Metal

Key data today: Unemployment Claims — 12:30 pm GMT

Gold is trading under mild bearish pressure as a firmer dollar, elevated Treasury yield expectations, and rate uncertainty combine against it. Wednesday’s session saw prices slip after stronger U.S. economic data and climbing oil prices revived concerns that inflation could remain elevated for longer than markets had previously priced. That prospect keeps the Federal Reserve firmly cautious on rate cuts, removing a key catalyst that typically drives gold demand. As a result, the metal heads into Thursday’s session without a clear near-term bullish trigger.

24-Hour Bias: Weak Bearish

Australian Dollar (AUD): Soft GDP Print Clouds Outlook Before Bullock Speaks

Key event today: RBA Governor Bullock Speaks — 5:00 am GMT

The Australian dollar faces competing pressures as traders balance weak domestic data against shifting global risk sentiment. Australia’s Q1 GDP expanded by just 0.3%, falling short of expectations and pointing to a meaningful loss of economic momentum. The soft number has raised concerns about cooling consumer spending and the cumulative effect of higher borrowing costs, both of which limit the case for further aggressive RBA tightening and, in turn, cap bullish momentum for the currency.

RBA Policy Outlook:

The RBA raised its cash rate by 25 basis points to 4.35% at the May 5, 2026 meeting in an 8-to-1 vote, framing the new setting as more restrictive. Headline CPI reached 4.6% year-on-year through March 2026, up from roughly 3.7% in February, while trimmed mean inflation holds above 3.0%, keeping price pressures well outside the 2% to 3% target band.

Services costs, housing-related prices, and discretionary spending remain persistently firm, with recent monthly data delivering upside surprises in housing components. Markets currently price a hold at the June meeting, with only a limited chance of an additional 25 basis point increase later in 2026. The RBA’s next meeting is June 15 to 16, 2026.

24-Hour Bias: Weak Bullish

New Zealand Dollar (NZD): Dollar Strength and Risk Caution Push Kiwi Lower

No major data scheduled today.

The New Zealand dollar is drifting lower into the 0.5860 to 0.5900 range against the U.S. dollar, caught between broad dollar strength and a renewed appetite for safe-haven assets. Uncertainty around Middle East tensions and persistent global inflation concerns has pulled capital away from higher-risk currencies, leaving the kiwi with limited near-term support.

RBNZ Policy Outlook:

The RBNZ held the Official Cash Rate at 2.25% at its May 27, 2026 meeting, though the decision required Governor Anna Breman’s casting vote to resolve a three-to-three deadlock on the committee. Three members backed an immediate hike to 2.50%, while three favored holding. Despite the unchanged rate, the central bank delivered its most hawkish guidance since the cutting cycle ended, signaling the OCR will likely need to rise sooner and by more than previously expected.

Markets now assign a 72% to 73% probability to a hike at the July 8 meeting, with swap markets pricing in roughly 16 basis points of tightening. Annual CPI held at 3.1% in Q1 2026 for a second consecutive quarter, above the 1% to 3% target band, and the RBNZ forecasts a peak of 4.3% by September 2026 before a return to the 2% midpoint by mid-2027. The terminal OCR forecast has been revised up to 3.28%, implying approximately 100 basis points of total tightening ahead. The next meeting is July 8, 2026.

24-Hour Bias: Weak Bearish

Japanese Yen (JPY): Officials Warn as USD/JPY Hovers Near Critical 160.00

No major data scheduled today.

The Japanese yen remains under considerable pressure as three distinct themes occupy traders: the possibility of Japanese government intervention, building expectations of a Bank of Japan rate hike in June, and persistent U.S. dollar strength. USD/JPY has circled the 160.00 level, a threshold Japanese authorities previously defended through direct market action. In response to the renewed weakness, Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama have each issued fresh warnings that policymakers stand ready to act if speculative forces continue driving excessive yen depreciation.

BOJ Policy Outlook:

The Bank of Japan held its short-term policy rate at 0.75% at the April 27 to 28 meeting, maintaining a gradual normalization path. Any further move toward 1.0% depends on sustained wage-inflation persistence, yen stability, and real activity data. JGB tapering continues on schedule, reducing outright purchases by ¥400 billion quarterly through Q1 2026 and a further reduction to ¥200 billion from April onward. Core CPI excluding fresh food runs in the mid-1% range year-on-year, while core-core inflation stays above 2%, underpinned by sticky services pricing and 2026 shunto wage negotiations near 5%. The BOJ’s next meeting is June 15 to 16, 2026.

24-Hour Bias: Weak Bearish

Oil: Inventory Draw and Geopolitical Risk Premium Keep Markets Supported

No major data scheduled today.

Oil markets remain well-supported as three forces converge: tightening supply conditions, elevated geopolitical risk premiums, and bullish inventory data. U.S. government figures released Wednesday revealed that crude stockpiles fell by approximately 8 million barrels during the latest reporting period, a much larger draw than analysts had anticipated. The result points to strong refinery throughput and robust export demand at current price levels.

Beyond the inventory picture, traders continue attaching a meaningful risk premium to prices given ongoing instability in the Middle East and a lack of diplomatic progress involving Iran. The combination keeps the fear of prolonged supply disruptions alive, providing a floor beneath prices even as broader demand concerns linger in the background.

24-Hour Bias: Weak Bearish

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