FX Majors Hold Steady Ahead of FOMC Amid Oil and AI Turbulence

The major foreign exchange rates have remained relatively stable overnight ahead of tonight's FOMC meeting. The Norwegian krone and Swedish krona were among the biggest movers, reflecting the sharp correction lower for crude oil prices. However, the recent de-escalation of military tensions between the US and Iran has triggered temporary reversals for these currencies.

Iran's state-run IRIB News reported that Iran 'struck and brought to a halt' three tankers transiting the Strait of Hormuz on what was called an unsafe and illegal route. The latest unfavourable developments have lifted oil prices overnight, but the price of Brent remained below $90/barrel.

The other main market focus ahead of the FOMC meeting has been the deepening correction lower for AI-related stocks. The Nasdaq extended its sell-off since the June peak to over 10% yesterday, while South Korean equities saw a bigger correction, with the Kospi index falling by 6% overnight.

The Australian dollar also weakened overnight, mainly triggered by the release of another softer than expected inflation report from Australia. Core inflation surprised to the downside for the second consecutive quarter in Q2, giving RBA policymakers a better starting point for their updated economic forecasts and easing pressure to hike rates further.