Forex News
Commerzbank’s Michael Pfister analyses NOK/SEK through oil-price sensitivity and rate expectations. He finds the Norwegian Krone reacts more strongly to oil than the Swedish Krona, while Riksbank expectations adjust more to oil shocks than Norges Bank. If the Strait of Hormuz reopens sustainably, he expects SEK to appreciate significantly against NOK as oil falls and rate hikes are priced out.
Hormuz scenario favours Swedish Krona
"This relationship between oil prices, interest rate expectations and currency performance is likely to be reflected the most in one currency pair: Since the start of the war, the Swedish krona has lost significant ground, while the Norwegian krone has been the top performer among the G10 currencies. Does this mean that if an agreement is reached, the Swedish krona will appreciate and the Norwegian krone will depreciate?"
"The data clearly show that an increase in oil prices was accompanied by Swedish krona depreciation, while the opposite was true for the Norwegian krone. But the relationship was significantly more positive for the Norwegian krone than negative for the Swedish krona. The former is likely obvious, while the latter stems from Sweden’s relatively low dependence on energy imports: the difference between energy imports and exports as a percentage of total exports is -1.8% (by comparison, Norway's figure is 57%)."
"This means that the Norwegian krone is more affected by falling oil prices than the Swedish krona is affected by rising oil prices. At this point, however, a second factor comes into play. Interest rate expectations for the central banks of both countries have essentially followed the pattern I demonstrated last week."
"Both currencies are likely to be affected as interest rate hike expectations are priced out, though the Swedish krona will probably be impacted slightly more. In other words: If the Strait of Hormuz opens sustainably, the Norwegian krone will be affected by falling oil prices and the pricing out of interest rate hike expectations. The effect on the Swedish krona is more balanced; however, falling oil prices are likely to offset the correction in interest rate expectations resulting in a slight SEK appreciation."
"In short, should an agreement be reached, the Swedish krona is likely to appreciate significantly against the Norwegian krone."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The US Dollar Index recovers slightly to near 99.70 after a significant decline on Friday.
- Traders price out hawkish Fed bets after weak US NFP data.
- Investors await the US CPI data for fresh cues regarding the Fed’s monetary policy outlook.
The US Dollar (USD) edges up against its peers on Monday after a vertical decline on Friday. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 99.70.
Financial markets doubt the recovery in the US Dollar as traders have priced out the possibility of a Federal Reserve (Fed) interest rate hike in the September policy meeting, following the release of the weak United States (US) Nonfarm Payrolls (NFP) data for July on Friday.
Fed repricing gathers pace as ING doubles down on Dollar bearishness
Strategists at ING reiterate that their long-held call for no further Fed hikes this year was always going to be stress-tested into the 16 September FOMC. They note that, at the start of August, this view was set to face “five major tests before the 16 September FOMC: two jobs reports, two CPI reports and Jackson Hole,” and caution that if those events had failed to trigger a dovish shift in market expectations, “pricing a September hike above 50% could itself have materially increased the risk of a hike, if only to avoid another bond sell-off on meeting day.”
The first of those tests “arrived on Friday and came through clearly dovish and dollar-negative.” ING highlights, citing James Knightley, that “the -20k payroll print was not the only concern,” with “more than 100k of downward revisions” leaving “average payroll growth at just 20k over the past three months, with health and social care still doing most of the heavy lifting.”
Against that backdrop, ING says “our dovish Fed call is strengthening, and so is our bearish bias on the dollar.” They point out that “despite Friday’s repricing, 11bp are still priced in for September, 28bp for December and 40bp for April,” arguing that “there remains ample room for dovish repricing to harm the dollar if we are right about the Fed.”
Meanwhile, investors shift their focus to the US Consumer Price Index (CPI) data for July, which will be released on Wednesday.
Regarding the US CPI data, strategists at ING expect the upcoming US inflation data to provide another dovish signal for the Fed, albeit in a more measured fashion than last week’s weak payrolls report. They write that they “expect the second test, Wednesday's July CPI release, to send a similar, albeit less dramatic, message,” and forecast “headline CPI at 0.1% month-on-month versus 0.2% consensus, and core CPI at 0.2%, in line with consensus.” In their view, such an outcome would support further dovish repricing of Fed expectations and remain consistent with their bearish stance on the Dollar.
US Dollar Index Technical Analysis
The Dollar Index Spot trades at around 99.70, holding a near-term bearish bias as price holds beneath the 20-day Exponential Moving Average (EMA) at 100.35, keeping the recent decline intact and suggesting rallies are likely to meet supply near that dynamic barrier.
The 14-day Relative Strength Index (RSI) hovers near 37, indicating weak momentum but not yet oversold, which hints that downside pressure persists while leaving room for further losses before exhaustion signals emerge.
On the topside, initial resistance is defined by the 20-day EMA at 100.35, and a daily close above this level would be needed to ease the immediate bearish tone and open the way for a more sustained recovery. Looking down, the US Dollar Index could witness an acceleration in the downside pressure if it drops below the June 15 low at 99.38. Below 99.38, the 99.00 level would be the key support.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Rabobank’s Bas van Geffen notes that talks on reopening Hormuz are progressing slowly, with Iran adding new conditions on the United States (US), keeping geopolitical risk elevated for Oil. He highlights that Brent futures started the week only marginally higher as traders avoid large positions given on‑again, off‑again headlines around Iran, the US and regional tensions.
Hormuz tensions keep Oil risk premium
"Talks between Iran and Oman on the reopening of Hormuz are reportedly inching ahead, as Iran continues to give the US the silent treatment. Negotiators said that a deal to establish a safe shipping route was close, but Iran may now be exploring just how much it can extract from the US in return."
"But give them an inch and they’ll take a mile. Tehran added new demands over the weekend, saying that the Strait of Hormuz will not reopen unless the US meets “a number of requirements.” These demands largely seem to refer to the original memorandum of understanding."
"Iran’s additional demands include the US ending all hostilities and withdrawing its troops from the area. Iran also wants Washington to pay billions in war damages and lift sanctions on the country."
"Or do the additional demands reflect division between Iranian camps, and varying levels of distrust of the US? The strait remains a key point of geopolitical leverage – at least until planned alternatives for oil exports are all fully operational."
"Energy markets started the week off cautiously after all this. Brent futures are marginally higher, but traders seem reluctant to take big positions given all this on-again, off-again news."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/JPY could find immediate support at the nine-day EMA at 183.06.
- The 14-day Relative Strength Index near 44 signals soft, stabilizing bearish momentum.
- The primary barrier lies at the 50-day EMA at 184.57.
EUR/JPY rises after registering losses in the previous day, trading around 183.10 during the European hours on Monday. The currency cross is holding a capped tone as it sits below the 50-day Exponential moving average (EMA) while clinging to short-term support at the nine-day EMA. This configuration suggests a corrective phase within the broader uptrend, with sellers retaining the upper hand while the 14-day Relative Strength Index (RSI) around 44 hints at still-soft but stabilizing bearish momentum after the recent slide.
Yen positioning shift seen as response to Japan intervention
Strategists at Societe Generale argue that the recent positioning adjustment in the Yen futures market is being driven primarily by official action rather than a genuine change in sentiment. They highlight that the sharp drop in speculative exposure, with the “collapse in Short Yen CFTC positions to 10.8%,” is “a reflection of MoF intervention, not a reflection of greater optimism that the currency has fundamentally turned.”
A pullback below the nine-day EMA at 183.06 would reinforce the bearish bias and put downward pressure on the EUR/JPY cross to navigate the region around the eight-month low of 179.37, reached on August 3, followed by the nine-month low of 175.70.
On the upside, the EUR/JPY cross could find initial resistance at the 50-day EMA at 184.57. Further advances above the medium-term moving average would cause a bullish emergence and support the currency cross to explore the region around the all-time high of 187.95, which was recorded on April 17.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | -0.00% | 0.43% | 0.07% | 0.00% | 0.06% | 0.02% | |
| EUR | -0.01% | -0.02% | 0.40% | 0.04% | -0.01% | 0.03% | 0.00% | |
| GBP | 0.00% | 0.02% | 0.43% | 0.06% | 0.03% | 0.05% | 0.02% | |
| JPY | -0.43% | -0.40% | -0.43% | -0.39% | -0.46% | -0.44% | -0.43% | |
| CAD | -0.07% | -0.04% | -0.06% | 0.39% | -0.13% | 0.00% | -0.07% | |
| AUD | -0.00% | 0.01% | -0.03% | 0.46% | 0.13% | 0.03% | 0.02% | |
| NZD | -0.06% | -0.03% | -0.05% | 0.44% | -0.00% | -0.03% | -0.02% | |
| CHF | -0.02% | -0.01% | -0.02% | 0.43% | 0.07% | -0.02% | 0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Brown Brothers Harriman’s (BBH) Elias Haddad argues that the British Pound (GBP) requires a stronger-than-expected United Kingdom (UK) Gross Domestic Product (GDP) print to gain upside traction. Haddad expects UK real GDP growth to slow in Q2, with consumption easing as tighter financial conditions and weaker real income growth weigh on demand, leaving current market pricing for 50 bps of additional Bank of England (BoE) tightening vulnerable to dovish repricing if data disappoints.
Growth slowdown threatens BoE pricing
"UK real GDP growth to slow in Q2 (Thursday). Consensus is for real GDP to rise 0.4% q/q vs. 0.6% in Q1."
"The Bank of England (BoE) projects a softer print of 0.3% q/q as lower household real income growth, and tighter financial conditions weigh on domestic demand activity. The BoE forecasts consumption growth to ease to 0.3% q/q in Q2 vs. 0.6% in Q1."
"As such, absent a GDP beat, UK rate pricing looks vulnerable to a dovish repricing against GBP."
"The swaps curve continues to imply 50bps of BoE tightening to 4.25% in the next twelve months. That would leave the policy rate above the BoE’s estimated neutral range (2.00%-4.00%) when the UK economy is operating well below potential."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/USD struggles to gain any meaningful traction as a modest USD strength caps the upside.
- Geopolitical uncertainties and Fed hike bets offset the soft US NFP report and support the USD.
- Traders seem reluctant ahead of the RBA decision on Tuesday and US inflation figures this week.
The AUD/USD pair enters a bullish consolidation phase at the start of the new week as traders opt to move to the sidelines ahead of the crucial Reserve Bank of Australia (RBA) meeting on Tuesday. Nevertheless, spot prices remain close to the highest level since June 16, touched on Friday, and hold steady above mid-0.7000s during the early part of the European session.
Analysts at Rabobank highlight that “Tuesday, the Reserve Bank of Australia sets rates,” and while they acknowledge the three rate increases delivered since the start of the year, they caution that they are “not entirely convinced that the three hikes delivered since the start of the year are enough to mop up excess demand in the Australian economy.” Nonetheless, Rabobank notes that “the RBA seems to hope it is,” suggesting the central bank may now be inclined to pause and assess the impact of tightening already in place.
Data released over the weekend showed that China’s annual consumer inflation rate slowed to a six-month low and producer price inflation eased more sharply than expected in July. This, in turn, is seen as a key factor weighing on antipodean currencies, including the Australian Dollar (AUD), which, along with the emergence of some US Dollar (USD) buying, acts as a headwind for the AUD/USD pair.
The immediate market reaction to Friday's disappointing US Nonfarm Payroll (NFP) report faded rather quickly amid persistent uncertainties surrounding the Middle East crisis and the reopening of the Strait of Hormuz. Furthermore, fresh attacks by Iran-backed Houthi militants against Saudi energy infrastructure keep the geopolitical risk premium in play and benefit the safe-haven Greenback.
Meanwhile, the US-Iran standoff offers some support to crude oil prices, fueling inflation fears and bets for at least one interest rate hike by the US Federal Reserve (Fed) in 2026 firmly on the table. This is seen as another factor underpinning the USD and capping the AUD/USD pair ahead of the key RBA event risk. Traders this week would further take cues from the latest US inflation figures.
AUD/USD daily chart
Technical Analysis
The AUD/USD pair maintains a constructive near-term bias above the 100-day Simple Moving Average (SMA) at roughly 0.7053 while pressing just under the 50.0% Fibonacci retracement level of the May-June fall at 0.7066. The subsequent move up could extend to the 61.8% level at 0.7114, with the 78.6% retracement at 0.7182 forming subsequent hurdle ahead of 0.7269. On the downside, initial support is provided by the 100-day SMA around 0.7053, followed by the 38.2% Fibo. retracement at 0.7019 and the 23.6% retracement at 0.6959, while a deeper setback would expose the structural floor near 0.6864.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.
Read more.Next release: Tue Aug 11, 2026 04:30
Frequency: Irregular
Consensus: 4.35%
Previous: 4.35%
Source: Reserve Bank of Australia
Deutsche Bank strategists report that falling energy prices and softer Federal Reserve (Fed) expectations helped push the S&P 500 and other major equity indices to new record highs last week. The rally was reinforced by a renewed AI trade, with the Philadelphia Semiconductor Index surging, while US high-yield credit spreads saw their biggest tightening since April, signalling broad risk-on sentiment.
S&P 500: Record highs with AI-led risk rally
"The fall in energy prices supported a risk-on move, helping the S&P 500 (+3.58%, +0.62% Friday), Stoxx 600 (+1.70%, +0.31% on Friday), DAX (+2.69%, +0.69% Friday) and CAC 40 (+2.41%, +0.17% Friday) all reach new record highs. For both the S&P 500 and the NASDAQ (+5.19%, +1.30% Friday), this also marked the largest weekly gains since April."
"Equities were also supported by the continued rebound in the AI trade that had started late the previous week. The Phily Semiconductor (Sox) Index rose +9.24% last week (+2.56% on Friday) after a difficult July."
"In Asia the Nikkei (+1.80%) is strong this morning but the KOSPI is fading after a decent start and is now broadly flat on the day. Elsewhere, Chinese equities are mixed, with the CSI 300 declining -0.52%, while the Hang Seng and Shanghai Composite are up +0.72% and +0.20%, respectively. In Australia, the S&P/ASX 200 is down -0.42%, surrendering a portion of the gains recorded on Friday."
"Brent is up around +0.8% this morning but US and European equity futures are fairly flat."
"On the corporate side, the earnings season is becoming less intensive, with 400 out of the S&P 500 having now reported, but several notable companies remain on the calendar. In the US, investors will focus on results from Cisco, Applied Materials and CoreWeave, while in China attention will fall on Tencent and BYD"
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/GBP extends losses for the second consecutive day to test support at the 0.8560 area.
- Higher Oil prices and the complex status of the Strait of Hormuz are weighing on the Euro.
- Rabobank analysts see market concerns about the UK's budget and overestimated BoE tightening views likely to weigh on the Pound.
The Euro (EUR) posts mild losses against the British Pound (GBP) on Monday, with the EUR/GBP pair testing Friday’s lows at 0.8560, as the situation in the Middle East muddles and Crude prices tick up, adding pressure on the Eurozone’s Oil-importing economies.
Weapons remain silent in Iran, but an ever-growing confusion surrounds the negotiating process, pushing back hopes of a swift end to the conflict. US President Donald Trump said on Monday that he is “semi-negotiating” with Tehran while Iran affirmed that an agreement with Oman to define new shipping lines through the Strait of Hormuz is near, although the reopening will depend on the US meeting some conditions.
Meanwhile, sea traffic through the key waterway remains reduced to a trickle, and Brent Oil prices returned to levels near $83.00, about 6.5% above last week’s lows.
RaboBank analysts favour buying on EUR/GBP dips
Looking from a wider perspective, analysts at Rabobank see “a re-pricing in policy expectations towards steady policy from the BoE this year combined with the prospect of nervousness ahead of the October budget suggests scope for downside pressure on the pound as the summer draws to a close.”
Against this backdrop, Rabobank reiterates a preference for the Euro over the Pound, stating: “We favour buying EUR/GBP on dips to the 0.8550 area. A break above the recent high in the 0.8588 region could increase upside potential.”
The calendar on Monday is thin, with only the Eurozone Sentix Investors Confidence Index worth mentioning. On Wednesday, Germany’s inflation figures and Thursday’s UK Gross Domestic Product and Eurozone Industrial Production data are expected to confirm the pair’s near-term direction.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- USD/CAD advances as US-Iran conflict and Strait of Hormuz tensions heighten market anxiety.
- Lowers September rate hike odds after Nonfarm Payrolls unexpectedly dropped in July.
- Rebounding WTI price may provide underlying support for the commodity-linked Canadian Dollar.
USD/CAD gains ground after registering over 0.5% losses in the previous day, trading around 1.3950 during the early European hours on Monday. The pair gains ground as the US Dollar (USD) strengthens on rising safe-haven demand, driven by heightened geopolitical caution.
Middle East tensions remain elevated as the ongoing US-Iran conflict enters a critical diplomatic phase, marked by intense military engagements and strategic pressure surrounding the Strait of Hormuz. Tehran noted that talks with Oman to establish a safe shipping route through the strategic waterway are nearing an agreement, though it cautioned that any deal would not lead to an immediate reopening.
Additionally, Iran-backed Houthi militants in Yemen claimed a recent attack on Saudi Arabia’s Jazan refinery, while a tanker operated by the Abu Dhabi National Oil Co. was targeted in the Strait. Meanwhile, Tehran has rejected direct negotiations with the United States for now, citing alleged breaches of the interim peace deal reached in June.
On the economic front, US Nonfarm Payrolls (NFP) unexpectedly dropped by 23,000 in July, while sharp downward revisions to June’s figures, falling to 20,000 from an initially reported 57,000, highlight weakening labor market conditions. Consequently, the CME FedWatch Tool suggests markets now see nearly a 44% probability of a 25-basis-point rate hike in September, down from 67% a week earlier. Investors are currently turning their focus to upcoming inflation reports for further clues on the direction of monetary policy.
Despite these tailwinds for the US Dollar, upside potential for the USD/CAD pair could be restrained by support for the commodity-linked Canadian Dollar (CAD). Oil prices have rebounded, with West Texas Intermediate trading around $77.20 per barrel as it pares losses from the previous session. Persistent uncertainty surrounding efforts to reopen the crucial Strait of Hormuz continues to underpin crude prices, offering a counterweight to the US Dollar's momentum.
Canadian labor market surprise bolsters case for Dollar resilience
Analysts at Commerzbank underline that, “in contrast to the US labour market, the Canadian labour market delivered a very positive surprise on Friday,” with hiring momentum far outpacing expectations. They note that while “the median Bloomberg consensus forecast had predicted the creation of 20,000 new jobs, roughly 75,000 were actually created,” underscoring the strength of the latest report. In their view, this surge in employment has already fed through to headline indicators, as “in light of these figures, the unemployment rate also fell unexpectedly to 6.4%, its lowest level in two years, marking a decline of half a percentage point over the past three months.” Against the backdrop of improving GDP, PMI and export data, Commerzbank sees this robust labour performance as reinforcing the narrative of a recovering real economy, even if they caution that the upswing remains vulnerable to shifts in US trade policy.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
BNY’s Geoff Yu and David Tam highlight that USD/JPY is grinding higher again after Japan’s recent intervention, with the Japanese Yen (JPY) having already surrendered much of its gains. They argue that a break above 160 would intensify pressure on authorities to adjust policy if a stronger Yen is truly desired, warning that failure to follow through undermines intervention as an effective tool.
Authorities face pressure above 160
"The latest round of intervention by Japan’s Ministry of Finance may have passed, but we expect more rhetoric from the government as USD/JPY resumes grinding higher."
"Further JPY losses – especially a breach of the psychologically important 160 barrier – would likely add to pressure on Japanese authorities to change its comprehensive policy approach, if a stronger JPY is the policy objective, irrespective of U.S. data developments."
"U.S. Treasury Secretary Scott Bessent acknowledged that the joint action was only a “signal,” and Tokyo needed to follow through."
"Not doing so would question the very nature of intervention as a policy tool."
"Policy credibility erosion will continue unfolding with every tick higher in USD/JPY."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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