Finance
Aussie jumps, yen slumps as rates play dominates in February
Published by Global Banking & Finance Review®
Posted on February 27, 2026
4 min readLast updated: February 27, 2026
Quick Summary
Rate expectations steered FX in February: the Aussie rose on hawkish RBA bets while the yen weakened as Takaichi’s stance complicated BOJ hikes. The dollar firmed on Fed cues and a Supreme Court ruling curbing tariffs.
Aussie rallies as yen slides, rate bets steer FX markets in February
By Rae Wee
SINGAPORE, Feb 27 (Reuters) - The Australian dollar was poised for another sharp monthly gain on Friday as expectations grow for a more hawkish central bank, while the yen was headed for a loss as the Bank of Japan contends with an emboldened reflationist prime minister.
Investors have had to grapple this month with geopolitical tensions, a pivotal U.S. Supreme Court ruling over Trump's tariffs and fickleness over the artificial intelligence trade, among other developments.
Shifting Rate Bets Drive February FX Moves
But moves in the currencies for the month were driven primarily by shifting rate expectations.
"The rates are reflecting the changing macro situation," said Sim Moh Siong, a currency strategist at OCBC.
"Last year was about which central banks will cut rates and by how much. This year, the focus has shifted towards which central banks will lead in terms of hiking rates."
Australian Dollar: RBA Hawkish Tilt
The Australian dollar, which was steady at $0.7106 on Friday, was on track for a monthly gain of roughly 2%.
AUD up ~2% in Feb and 6% YTD
Up more than 6% for the year thus far, it is the best-performing G10 currency to date, as a domestic economy in rude health fuels expectations for a more hawkish Reserve Bank of Australia.
Strategist View: Commonwealth Bank of Australia
"It is conceivable that the Aussie dollar can put on one or two more (U.S.) cents from here," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
"We are still of the view that there will be just one more 25-basis-point rate hike from the RBA this year."
Japanese Yen: BOJ Path and Politics
Also on the hiking path is the Bank of Japan, though that has done little to help the yen as domestic politics complicates the rate outlook, despite BOJ Governor Kazuo Ueda signalling openness to a near-term hike.
While the yen was up 0.2% at 155.78 in Asia, it has fallen 0.4% for the week and 0.6% for the month thus far.
BOJ Board Nominations and PM Signals
This week, Japan's government nominated two academics seen by markets as strong advocates of economic stimulus to join the BOJ's board.
The surprise move sends a not-so-subtle message about Prime Minister Sanae Takaichi's distaste for higher interest rates, casting doubt on how much further policy can be tightened.
"The political optics around appointments make markets question the pace and conviction of policy normalisation," said Saxo's chief investment strategist Charu Chanana.
ASSESSING THE RATE OUTLOOKS
Sterling: BOE Dovish Shift
Sterling was steady at $1.3484, set to snap three straight months of gains with a 1.5% fall in February.
The British pound has been undermined by a dovish tilt from the Bank of England, with traders now pricing in an 83% chance of a rate cut in March.
US Dollar: Fed Signals and Court Ruling
The dollar was set to gain 0.6% for the month, helped by a slightly more hawkish Federal Reserve after "several" policymakers signalled at January's policy meeting their openness to rate hikes if inflation remains elevated.
Nonetheless, investors continue to price in two more Fed cuts this year.
"I think because there's still lingering concerns about what the Fed would be like under new Fed Chair Kevin Warsh," said OCBC's Sim.
SCOTUS Tariff Decision Supports Dollar
The U.S. Supreme Court's decision to strike down Trump's tariffs also reinforced checks and balances on presidential power, which provided some support for the dollar, analysts said.
Euro: ECB Seen On Hold
Moves in the euro were more muted, with the common currency little changed at $1.1796 on Friday and headed for a monthly loss of just over 0.4%.
Expectations are for the European Central Bank to keep rates steady for months to come.
China: FX Rules and Yuan Moves
In China, the country's central bank said on Friday it will scrap foreign exchange risk reserves for some forwards contracts, a move that would reduce the cost of dollar buying.
The decision comes after the yuan climbed 4.4% against the dollar in 2025, its biggest annual gain since 2020, with the upward momentum continuing this year.
Yuan Levels: Onshore and Offshore
Onshore yuan was last down 0.24% at 6.8572 per dollar, while its offshore counterpart slipped 0.1% to 6.8542 per dollar.
(Reporting by Rae Wee; Editing by Edwina Gibbs)
Key Takeaways
- •AUD heads for another monthly gain on expectations of a more hawkish RBA.
- •JPY softens as reflationist policy signals and BOJ board picks cloud the hiking path.
- •Rate expectations, more than geopolitics or AI-driven equity moves, drove February FX.
- •The dollar steadied on slightly hawkish Fed signals and a Supreme Court ruling on tariffs.
- •Sterling and euro lag as markets price divergent central bank paths in coming months.
Frequently Asked Questions about Aussie jumps, yen slumps as rates play dominates in February
1What is the main topic?
February’s FX moves were dominated by shifting rate expectations: the Aussie gained on hawkish RBA bets, while the yen slipped as Japanese politics complicated BOJ hikes.
2Why is the Aussie dollar rising?
Stronger domestic data and expectations for a more hawkish Reserve Bank of Australia supported the AUD, with analysts seeing scope for further gains if rate hikes persist.
3What pressured the Japanese yen?
Nominations of reflationist academics to the BOJ board and Prime Minister Takaichi’s pro-stimulus stance raised doubts about rapid tightening, weighing on the yen despite talk of possible hikes.
