Forex News

• The Dow Jones backslid again on Tuesday as equities waffle on tech outlook.
• Key earnings reports point to a cooldown in US consumer habits.
• Central bank policy statements and PMI survey results loom large over the rest of the week.

The Dow Jones Industrial Average (DJIA) flubbed an early rise on Tuesday, jumping higher before backsliding through the rest of the day, erasing the early morning gains. Investors are reconsidering their overly bullish positions heading into the midweek, trimming their exposure to the ongoing AI-fueled tech rally and hesitating after mega-sized home building supplier Home Depot (HD) missed earnings growth expectations.

The Dow Jones is still grappling with the 45,000 handle as major names on the Dow take a knee on Tuesday, balancing out gains made on the other side of the stock index. 45,277 remains the level to beat for buyers to push the Dow Jones back into fresh record highs, but the major equity index could be poised for a further pullback with price action testing well north of the 50-day Exponential Moving Average (EMA) near 43,875.

Key building supplier gains ground, but red flags are surfacing

Home building supplier Home Depot showed ongoing earnings growth in the second quarter, with revenue reaching $45.38B for the single quarter, and up around 5% YoY. However, Home Depot earnings still missed analyst expectations for the second quarter in a row. Home Depot stock gained firm ground on Tuesday, up around 3% on the day at the time of writing, but missed expectations are giving investors cause for pause on their assumptions about ongoing earnings growth. Consumers are beginning to revamp their home building and renovation habits, pivoting away from major projects and opting for smaller, cheaper projects, leaving big-ticket supplies and items on the shelves in favor of an increase in small-scale home investments and appliances.

Just as recession-wary consumers are switching to investing in appliances and cheaper home improvements rather than investing in large-scale renovations and upgrades, early tariff effects are already leaking through supply chains. Supply chain length and complexity, rather than earth-shattering bartering power, is sparing US consumers from the brunt of tariff-led price changes. Prices are rising faster and sooner in categories with shorter, more efficient supply chains, specifically in items such as appliances and small-scale home improvements. With consumers pivoting away from large home improvements in favor of medium-ticket items, the door could be closing on a major economic engine of US consumption.

Tech rally takes a rare double-glance

The AI tech craze caught a rare moment of clarity on Tuesday as the landscape continues to shift beneath the feet of ChatGPT-prompting navel-gazers. Tech stocks saw unexpected declines on the day, with AI flagship Nvidia (NVDA) backsliding over 3%. Facebook parent company Meta (META) announced it would be “restructuring” its entire AI division into smaller core groups with more defined design targets. This will pull a large portion of Meta’s AI development focus away from aiming for hypothetically profitable AI product offerings and refocus on ambiguously profitable “superintelligence” projects. Meta has also announced its departure from using strictly in-house tech to further its AI research goals and will now be accessing third-party technology from other AI companies. These are ostensibly the same AI research farms that Meta has spent the past two years hollowing out through billion-dollar talent-poaching schemes.

Dow Jones 5-minute chart

Dow Jones daily chart

• AUD/USD drops over 0.5% to near 0.6455, its lowest level in two weeks.
• The US Dollar Index (DXY) holds firm near a four-day high around 98.22.
• The Greenback is supported by cautious sentiment ahead of Fed minutes and Jackson Hole Symposium.

The Australian Dollar (AUD) weakens against the US Dollar (USD) on Tuesday, with AUD/USD slipping to its lowest level in two weeks. The pullback comes as the Greenback regains strength ahead of key US macro events, including the release of the Federal Reserve’s (Fed) July meeting minutes on Wednesday and Friday’s Jackson Hole Symposium, prompting cautious repositioning across currency markets.

At the time of writing, the AUD/USD pair is trading near 0.6453, down over 0.5% on the day. Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, is holding firm near a four-day high around 98.22, underpinned by cautious market sentiment and broad-based Dollar strength.

From a technical perspective, AUD/USD is currently testing support near the 0.6450 mark on the 4-hour chart. The pair has been drifting lower since briefly peaking above 0.6550 on August 14, forming a sequence of lower highs and lower lows, indicative of a short-term bearish trend.

A sustained break below 0.6450 would expose the next immediate support at 0.6420, the monthly low from August 1. A failure to hold above this zone could trigger a deeper pullback toward the June low at 0.6385

On the upside, initial resistance is seen near the 21-period Simple Moving Average, currently at 0.6498. This coincides with recent intraday swing highs and could cap any recovery attempts. A break above that would bring the 50-period SMA into focus. However, the 0.6550 level remains the key to shift the broader bias back to neutral, as it marks the August swing high and a strong prior rejection point.

Momentum indicators on the 4-hour chart paint a bearish picture for AUD/USD. The Relative Strength Index (RSI) has dropped to 28.5, slipping firmly into oversold territory. While this suggests selling pressure is elevated, it also raises the risk of a temporary bounce or consolidation, especially if the pair holds above the 0.6450-0.6420 support area.

However, given the prevailing trend of lower highs and lower lows, the oversold reading currently supports continuation rather than reversal. The Moving Average Convergence Divergence (MACD) indicator has shown a fresh bearish crossover, with the histogram turning negative, pointing to strengthening downside momentum, albeit still modest while near the zero line. Meanwhile, the Average Directional Index (ADX) stands at 19.6, indicating that although the trend is not yet strongly directional, bearish strength is beginning to build. A rise above 20 in the coming sessions could further validate the downside momentum.

The US Dollar (USD) had a positive day on Tuesday, as traders remained cautious ahead of the release of the FOMC Minutes on Wednesday and the pivotal Jackson Hole Symposium later this week. Furthermore, geopolitics has returned to the forefront of price action drivers.

Here's what to watch on Wednesday, August 20:

The US Dollar Index (DXY) clocked acceptable gains around 98.30 in a context of a generalised decline in US yields. The publication of the FOMC Minutes will be the salient event, seconded by the weekly MBA Mortgage Applications and the weekly report on US crude oil supplies by the EIA. In addition, the Fed’s Waller and Bostic are due to speak.

EUR/USD retreated modestly, adding to Monday’s downtick, always below the 1.1700 mark. The final Inflation Rate in the euro area will be released alongside the flash Q2 Labour Cost Index.

GBP/USD retreated to multi-day lows after breaching below the 1.3500 support. The critical Inflation Rate takes centre stage across the Channel.

USD/JPY faded Monday’s advance and revisited the mid-147.00s following earlier tops north of the 148.00 mark. Next in Japan will be the Balance of Trade results and Machinery Orders.

AUD/USD weakened further and reached three-week lows near the 0.6450 zone. The Consumer Inflation Expectations are due, seconded by the speeches from the RBA’s Connolly and McPhee.

Crude oil prices deepened their bearish leg, adding to Monday’s decline below the $62.00 mark per barrel of the American WTI as geopolitical tensions continued to mitigate.

Gold posted marked losses and slipped back to the $3,315 mark per troy ounce amid gains in the Greenback and declining US yields. Silver prices, in the same direction, dropped sharply to multi-day lows near the $37.00 mark peer ounce.

• Gold tumbles as Trump, Zelenskiy and European leaders discuss possible negotiations with Russia.
• Safe-haven demand eases as speculation of security guarantees for Kyiv sparks optimism over a potential end to the war.
• Trader’s eye Fed minutes and Powell’s speech for clues on policy path as Bowman reiterates outlook for three rate cuts.

Gold price tumbles on Tuesday as the Greenback extends its minimal gains for the second straight day, while geopolitical developments suggest that a positive outcome of the US President Trump meeting with Putin, Zelenskiy and European leaders could put an end to the ongoing war. XAU/USD is trading at $3,317.

Rumors of a possible de-escalation of the Ukraine–Russia conflict weighed on Bullion prices, which usually benefit from global uncertainty. Last Friday, the meeting between US President Donald Trump and his Russian counterpart, Vladimir Putin, prepared the ground for a possible resolution.

Trump reunited with Ukraine’s President Volodymyr Zelenskiy and other European leaders on Monday to set the stage for a possible ceasefire and push for a trilateral meeting to begin negotiations between Kyiv and Moscow.

US President Trump said that “Putin, Zelenskiy must be flexible” and that there would be some security guarantees for Ukraine to prevent another Russian attack. However, he said that he would not allow Ukraine to join NATO and added that European countries would supply ground troops.

Aside from this, housing data in the US was mixed. Housing Starts in July crushed estimates, rising more than 5%, while Building Permits dropped. Meanwhile, Federal Reserve (Fed) Governor Michelle Bowman reiterated the posture of three cuts by the year’s end and emphasized that the central bank should focus more on the employment mandate.

Ahead of this week, traders are eyeing the latest Fed meeting minutes and the speech of Fed Chair Jerome Powell on Friday.

Daily digest market movers: Gold price tumbles on US Dollar strength

• The US Dollar Index (DXY), which tracks the buck's performance against a basket of six currencies, is up 0.13% at 98.23.
• The US 10-year Treasury note is yielding 4.30%, down by nearly three basis points (bps).
• US Housing Starts rose 5.2% in July, climbing from 1.321 million to 1.428 million and beating expectations for a decline to 1.3 million. In contrast, Building Permits slipped during the same period, falling from 1.393 million to 1.354 million, signaling some softness ahead in residential construction activity.
• Expectations that the Fed will reduce rates in September remain high, though traders priced out a 50-bps chance that emerged following the US Consumer Price Index (CPI) report. However, July’s PPI spooked investors, who had also bet that the central bank might keep rates unchanged.
• Fed Interest Rate Probabilities show that traders had priced in an 85% chance of a quarter of a percentage rate cut at the September meeting, according to Prime Market Terminal data.

Technical outlook: Gold price slides towards $3,300 to turn neutral below $3,250

Gold price prints back-to-back bearish days, even though the overall trend in the daily chart is upwards. Nevertheless, since XAU/USD dropped below $3,320, the yellow metal seems poised to challenge the 100-day Simple Moving Average (SMA) at $3,301 in the near term.

The Relative Strength Index (RSI) turned bearish after it crossed below its 50-neutral line, but from a price action perspective, Gold needs to clear the June 30 low of $3,246 before turning neutral ahead of testing lower prices.

For a bullish resumption, traders need to reclaim the confluence of the 20- and 50-day Simple Moving Averages (SMAs) between $3,347/48. A breach of those levels clears the path to test $3,400. Overhead lie further key resistance levels, like the June 16 high at $3,452 and ultimately the all-time peak of $3,500.

• NZD/USD hovers near 0.5900, down 0.40% intraday as the Greenback regains footing ahead of key macro events.
• The US Dollar Index (DXY) extends modest gains toward 98.20, though upside remains limited amid firm expectations for a September Fed rate cut.
• Markets' attention now turns to Wednesday’s RBNZ meeting, with a 25 bps rate cut to 3.00% expected.

The New Zealand Dollar (NZD) weakens against the US Dollar (USD) on Tuesday, as traders reposition ahead of key macro catalysts, including the release of the Federal Reserve's (Fed) July meeting minutes and the Jackson Hole Symposium later this week. The Greenback edges higher across the board amid cautious sentiment, adding pressure on the Kiwi ahead of Wednesday’s Reserve Bank of New Zealand (RBNZ) interest rate decision.

At the time of writing, NZD/USD is trading near 0.5900, matching its weakest level since August 6 and reflecting a drop of approximately 0.40% for the day. While the US Dollar Index (DXY) edges upward toward 98.20 during the American session, its upside appears capped as markets are heavily pricing in a nearly certain 25 bps rate cut by the Federal Reserve in the September meeting.

RBNZ expected to cut OCR to 3.00%

Investor focus now shifts squarely to the RBNZ’s policy meeting on Wednesday, where a 25 basis-point cut from 3.25% to 3.00% is widely expected. According to a Reuters poll conducted between August 11 and 14, 28 out of 30 economists forecast the central bank will cut the Official Cash Rate (OCR) from its current level. The probability of a rate cut now stands over 90%, reflecting a broad consensus that the RBNZ is ready to step back in to support the economy.

This would be the first cut since earlier this year, after the RBNZ paused in July to assess the impact of prior easing steps. However, recent macroeconomic developments have likely tilted the balance back toward more accommodative policy.

• Unemployment rose to 5.2% in the second quarter, its highest level since 2021.
• Employment declined by 0.1%, while the labour force participation rate dropped to 70.5%, the lowest in over three years.
• Meanwhile, annual CPI inflation came in at 2.7% for the June quarter, comfortably within the RBNZ’s 1-3% target range.

Although global uncertainties persist, including trade friction and supply-side concerns tied to US tariffs, domestic inflation appears to be on a controlled trajectory. RBNZ Chief Economist Paul Conway recently acknowledged that trade policy disruptions could lower medium-term inflation, even as they threaten to suppress consumption and business investment.

What comes next? Market split on forward path

While Wednesday’s expected rate cut by the RBNZ appears to be a near-certainty, the medium-term trajectory for the interest rate cut path remains uncertain. Market analysts are divided in their outlooks. ASB Bank and Westpac Banking Corporation believe this week’s move will mark the final cut in the current monetary easing cycle. In contrast, the Bank of New Zealand (BNZ) anticipates one additional rate reduction, bringing the OCR down to 2.75% by the end of 2025. Meanwhile, both Australia and New Zealand Banking Group (ANZ) and Kiwibank forecast a more extended easing path, with the OCR potentially falling as low as 2.50% in 2026. The median market forecast points to one more 25 basis point cut in the first quarter of 2026.

Traders will closely watch the RBNZ’s Monetary Policy Statement and press conference on Wednesday for cues on the future rate trajectory. Later in the day, the release of the Federal Reserve’s July meeting minutes could offer fresh insight into the US policy outlook. Looking ahead, Friday’s Jackson Hole Symposium will take center stage, with Fed Chair Jerome Powell’s remarks likely to influence global rate expectations and broader market sentiment.

• Gold edges lower on Tuesday, easing from an intraday high of $3,345 as increased risk appetite and a firmer US Dollar weigh on sentiment.
• A stable US Dollar and slightly lower Treasury yields are offering mixed signals for Gold, limiting strong directional moves during the American session.
• Technically, XAU/USD is trading below the $3,330 threshold, reinforcing a bearish bias and paving the way for further downside toward $3,300.

Gold (XAU/USD) edges lower during the American session on Tuesday, pressured by a firmer US Dollar and improved risk sentiment. The metal is trading near $3,320, close to the 12-day low marked during early Asian trade. Earlier in the day, Gold had briefly rebounded from overnight weakness following Monday’s White House summit between US President Donald Trump, Ukrainian President Volodymyr Zelenskyy, and key European leaders. While the talks signaled diplomatic unity, the lack of a ceasefire continues to keep geopolitical uncertainty elevated, providing some underlying support to safe-haven flows.

A stronger US Dollar is capping Gold's recovery attempts, while slightly lower Treasury yields after three days of gains are offering only limited support. Looking ahead, focus shifts to Wednesday’s release of the FOMC meeting minutes and the upcoming Jackson Hole Symposium, both of which could shape expectations for the Federal Reserve’s next policy move. Markets are still pricing in a rate cut in September, and any dovish rhetoric could help revive demand for non-yielding assets like Gold.

While markets welcomed signs of diplomatic coordination, the Trump-Zelenskyy summit offered little in the way of immediate breakthroughs, keeping investors on edge. Leaders pledged continued military and economic support for Ukraine, with talks centering around a proposed “coalition of the willing” to oversee future defense arrangements. President Trump revealed he had already spoken with Russian President Vladimir Putin and signaled early preparations for a potential trilateral summit. “It would be two presidents, plus myself,” he noted, referring to a possible meeting with both Zelenskyy and Putin. Trump also emphasized that the United States would work closely with European partners to establish long-term security guarantees for Ukraine.

Market movers: Dollar, yields pull back as focus turns to Fed Minutes

• The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is holding steady near 98.17 on Tuesday, after briefly rising to a four-day high of 98.32 during Asian trading hours.
• US Treasury yields are easing slightly on Tuesday. The benchmark 10-year yield is currently at 4.312% and the 30-year at 4.913%, both retreating from two-week highs reached on Monday.
• S&P Global Ratings reaffirmed the United States' long-term sovereign credit rating at AA+ with a stable outlook. The agency noted that recent increases in tariff revenue are helping to offset fiscal pressures caused by expanded government spending and earlier tax cuts. While fiscal challenges persist, the stable outlook reflects confidence in the US economy’s resilience.
• UBS has increased its Gold price outlook, forecasting $3,600 per ounce (up from $3,500) by the end of March 2026, and now expects prices to reach $3,700 per ounce by June and September 2026. This upward revision is rooted in mounting US macroeconomic risks, accelerating de-dollarization, and robust demand from ETFs and central banks. The bank anticipates global Gold demand rising 3% to 4,760 metric tons in 2025, the highest level since 2011
• Goldman Sachs also maintains a bullish long-term outlook on Gold, projecting prices could reach $3,700 by end‑2025 and $4,000 by mid‑2026, citing sustained demand from “conviction buyers” including central banks and long-term investors.
• The latest US economic data offers a mixed macro signal but remains consistent with a moderating growth narrative enough to keep rate cut expectations alive, though not urgent. Retail Sales came in firm, pointing to resilient consumer demand, but a dip in consumer sentiment and rising long-term inflation expectations suggest households are becoming more cautious. Markets have responded by slightly paring back expectations for aggressive easing, yet a September rate cut remains the dominant base case.
• According to the CME FedWatch Tool, markets are pricing in an 83% chance of a 25 basis point rate cut at the Federal Reserve’s September 17 meeting. However, a Reuters poll published on August 15 reveals a more cautious stance among economists. Out of 110 surveyed, 67 expect a quarter-point cut next month, up from 53% in July, while just one forecasts a 50 basis point move. The remaining 42 economists see the Fed holding steady. While over 60% of respondents expect one or two cuts in total this year, there was no consensus on where the federal funds rate will stand by the end of 2025.
• Tuesday’s US economic calendar is relatively light, with Housing Starts being the only notable release. No major market-moving data is scheduled later in the day, though traders will keep an eye on remarks from Fed Vice Chair for Supervision of the Board of Governors Michelle Bowman for any fresh policy cues. Focus will turn to Wednesday’s release of the FOMC meeting minutes, which could provide further clarity on the Fed’s policy outlook.

Technical analysis: Gold consolidates in a narrow band, breakout hinges on $3,370

Gold (XAU/USD) is trading near $3,325 on Tuesday, slipping below the $3,330 support zone and testing its lowest level in nearly two weeks. While the metal had largely been confined to a horizontal range between $3,330 and $3,370 over the past week, the recent breakdown suggests growing downside pressure.

The failure to reclaim the 100-period Simple Moving Average (SMA) on the 4-hour chart, currently around $3,348, reinforces the bearish tilt.

At the same time, the 4-hour chart shows a falling wedge formation developing within this broader sideways range, a chart pattern that typically signals potential bullish breakout risk.

The Relative Strength Index (RSI) has slipped to 38, indicating building bearish momentum and reinforcing the downside bias in the near term.

A decisive break above $3,370 and wedge resistance could spark fresh upside momentum toward $3,400 psychological level. On the downside, a sustained move below $3,330 could expose the next support at $3,300, with further downside risk if that level gives way.

• GBP/USD erases early losses as reports suggest potential Trump–Zelenskiy talks in Moscow, boosting hopes of war resolution.
• Fed’s Bowman maintains outlook for three rate cuts in 2025, emphasizing greater focus on employment amid cooling inflation.
• UK July CPI expected at 3.7% as sticky services inflation could pressure BoE to slow its easing cycle later this year.

GBP/USD holds firm at around 1.3500 on Tuesday amid reports of a possible end to the war between Ukraine and Russia. At the same time, traders await inflation data in the United Kingdom (UK), the minutes of the Federal Reserve’s (Fed) July meeting and the Fed Chair Jerome Powell's speech at Jackson Hole.

Sterling steadies with traders awaiting UK inflation data and Powell’s Jackson Hole speech

Geopolitical developments are being cheered by investors, with the Pound erasing some of its earlier losses. Last Friday’s Trump-Putin meeting laid the groundwork for Monday’s summit between Washington and European leaders, including Ukraine’s President Volodymyr Zelenskiy. Recently, Sky News Arabia reported that Putin suggested a possible meeting with Zelenskiy in Moscow.

Recently, a Fed official crossed the newswires as traders brace for Powell’s speech at Jackson Hole. Governor Michelle Bowman said that her views had not changed, projecting three rate cuts in 2025, and emphasized that the Fed should be more focused on the employment mandate.

Data-wise, US Housing Starts in July expanded 5.2% up from 1.321 million to 1.428 million, exceeding estimates for a dip to 1.3 million. Contrarily, Building Permits for the same period contracted from 1.393 million to 1.354 million.

Across the pond, market participants are laser-focused on the release of inflation figures for July. The UK Consumer Price Index (CPI) is expected at 3.7%, while the services CPI is projected to rise by 4.8%. Although the inflation print could dent the Bank of England's (BoE ) chances to continue easing policy, the last Reuters poll hinted that economists project the Bank Rate to end 2025 at 3.75%, meaning that they’re pricing one more 25 basis points (bps) cut towards the end of the year.

GBP/USD Price Forecast: Technical outlook

The GBP/USD uptrend has stalled, but it remains supported by the 50-day Simple Moving Average (SMA) at 1.3497. The Relative Strength Index (RSI) is bullish, but it remains flat. This indicates that the pair could trade sideways.

If the pair climbs above August’s 18 high of 1.3565, expect a test of 1.3600. Otherwise, if GBP/USD tumbles below 1.3500, the first support is the 50-day SMA, followed by the 20-day SMA at 1.3416, ahead of 1.3400.

• WTI Crude Oil trades near $62.00, pressured by easing geopolitical tensions and a rising supply outlook.
• Trump-Zelenskyy summit raises hopes for de-escalation in the Russia-Ukraine conflict.
• WTI holds near $62.00 support with bearish technicals, trading below the 21- and 50-day SMAs, while RSI and MACD signal fading momentum

WTI Crude Oil remains under pressure on Tuesday, trading around $62.00 per barrel, as markets digest signs of de-escalation in the Russia-Ukraine conflict and position cautiously ahead of key macroeconomic events. The fading geopolitical risk premium, coupled with concerns over a mounting global supply glut, continues to weigh on sentiment and limit upside potential for Crude Oil prices.

Peace hopes reduce risk premium, supply overhang limits upside

The broader tone in crude markets reflects tentative optimism following Monday’s high-level meeting between US President Donald Trump, Ukrainian President Volodymyr Zelenskyy, and key European leaders. Traders interpreted the summit as a diplomatic breakthrough, with discussions underway for a trilateral dialogue involving Russia, which could eventually reduce geopolitical tension and sanction-related supply disruptions.

However, the upside remains capped by persistent concerns about excess supply. The International Energy Agency (IEA) forecasts that Oil supply will outstrip demand by nearly 1.8 million barrels per day in 2025, fueled by rising production from the US, Brazil, and OPEC+ members. This imbalance continues to anchor prices, limiting the impact of any near-term demand tailwinds.

Adding to the market's caution, traders are bracing for Fed Chair Jerome Powell’s address at the Jackson Hole Symposium later this week. While a dovish tone could weaken the US Dollar (USD) and marginally boost energy demand expectations through improved economic sentiment, it is unlikely to offset the drag from elevated inventories and steady output growth.

Technically, WTI Crude Oil is under pressure as it hovers near a key support at $62.00, trading below the 21-day ($64.76) and 50-day ($66.31) Simple Moving Averages. The bearish structure remains intact, and a break below this level could trigger a decline toward $60.00, with the May 8 low near $57.47 as the next downside target.

On the flip side, immediate resistance lies at $63.69 — last week’s high — followed by the $64.00-65.00 zone, which is reinforced by downward-sloping moving averages.

Momentum indicators reinforce the bearish outlook, with the Relative Strength Index (RSI 14) holding near 38.81, showing no signs of a reversal. The Moving Average Convergence Divergence (MACD) continues to signal downside pressure, remaining below the zero line with a bearish bias. Meanwhile, the Average Directional Index (ADX 14) sits at 18.92, indicating a weak trend that could result in consolidation in the ahead sessions. Unless $62.00 holds and prompts a recovery, the path of least resistance appears to be lower.

• USD/CAD climbs above 1.3830 as the Canadian Dollar weakens following softer inflation data.
• Canada’s CPI rose 1.7% YoY in July, matching expectations and easing from 1.9% in June, staying below the Bank of Canada’s 2% target for the fourth consecutive month.
• Scotiabank’s Derek Holt warns BoC is unlikely to act based on July data alone, citing sticky service inflation and tariff pass-through risks.

The Canadian Dollar (CAD) weakens against the US Dollar (USD) on Tuesday, with USD/CAD climbing above the 1.3830 mark as softer-than-expected inflation data from Canada fuels speculation of a dovish stance from the Bank of Canada (BoC). The release of July’s Consumer Price Index (CPI) showed continued disinflationary trends, undermining the Loonie and pushing the pair higher during the early North American session.

Canada’s inflation data for July, published by Statistics Canada on Tuesday, showed that the annual Consumer Price Index (CPI) rose 1.7% YoY, matching market expectations and down from 1.9% in June. This marked the fourth consecutive month that inflation stayed below the Bank of Canada’s 2% midpoint target, reinforcing the trend of sustained disinflation. On a monthly basis, consumer prices rose 0.3%, a modest acceleration from the prior month’s 0.1% increase but slightly softer than the 0.4% forecast.

Meanwhile, the BoC’s preferred Core CPI measure — which excludes volatile components — rose just 0.1% MoM, unchanged from the previous reading and sharply below the 0.4% forecast. On an annual basis, Core CPI eased to 2.6%, down from 2.7% in June.

While the softer inflation readings have triggered a dovish market reaction, economists caution that the Bank of Canada is unlikely to shift policy based solely on July’s CPI data. According to Scotiabank economist Derek Holt, the central bank’s trajectory will hinge on a broader range of indicators, with two additional inflation reports scheduled before the BoC’s September 17 rate decision. Holt noted that several structural forces continue to sustain inflationary pressure, particularly sticky service prices, rising breadth in pricing momentum, and the emergence of tariff-related effects, both from Canada’s retaliatory measures and supply chain disruptions linked to global trade tensions.

“The core measures exclude tariffs, but not the possible pass-through incidence effects,” Holt explained, suggesting that the challenges facing policymakers extend well beyond headline inflation.

In response to the CPI report, markets moved to price in a 37% chance of a BoC rate cut in September, up from 31% prior to the data, according to Canadian swap market pricing. While the probability remains below 50%, the upward revision reflects growing conviction that the disinflation trend may give the BoC more room to ease policy in the coming months, particularly if subsequent data confirms further cooling.

(This story was corrected on August 19 at 13:35 GMT to state that Canada’s July CPI matched expectations at 1.7%, not missed expectations of 1.9%.)