Forex News
- Weak US Dollar offsets the impact of lower oil prices, keeping CAD exchange rates relatively stable.
- July US CPI inflation fell to 3.4%, reducing chances of an aggressive Fed rate hike.
- Canadian Dollar weakens as OPEC and IEA slash 2026 global oil demand forecasts due to Middle East conflict.
USD/CAD remains steady after registering minor gains in the previous day, trading around 1.3940 during the Asian hours on Thursday. The currency pair moves within a narrow range as a weaker US Dollar (USD) balances out the impact of falling oil prices on the commodity-linked Canadian Dollar (CAD).
The Greenback continues to face headwinds following the release of July's Consumer Price Index (CPI) report, which showed moderating inflation across a wide range of goods and services and significantly cooled expectations for an aggressive Federal Reserve interest rate hike in September.
According to data from the Bureau of Labor Statistics, headline CPI rose 3.4% year-over-year in July, down from 3.5% in the previous month. Similarly, core CPI, which strips out volatile food and energy prices, rose 2.5% year-over-year compared to 2.6% in June. Both figures landed right in line with market forecasts.
Following the inflation report, market expectations for future Federal Reserve policy shifts have recalibrated. According to the CME FedWatch tool, interest-rate swaps are now pricing in roughly a 40.1% chance of a rate hike in September. Odds for an October increase dropped to around 60% from 75% the prior day, with the next potential rate hike not fully priced in until December.
US inflation in line with expectations as energy and food costs ease
According to TD Securities, July US consumer price inflation came in broadly as expected, with the headline index rising “0.1% m/m (0.074% before rounding; TD: 0.15%, consensus: 0.1%).” Strategists note that the modest increase was “partly explained by still retreating energy prices (gasoline -3% m/m) and slowing food inflation,” underscoring how softer input costs helped keep overall price pressures contained over the month.
Meanwhile, the Canadian Dollar is coming under pressure as oil prices decline following downward revisions to global demand forecasts for 2026, driven by disruptions stemming from the US-Israeli war on Iran. In its monthly oil market report on Wednesday, OPEC reduced its 2026 world oil demand growth projection to 580,000 barrels per day. Meanwhile, the International Energy Agency further downgraded its outlook, forecasting a 1.6 million bpd contraction in consumption this year—a notable drop from its previous estimate of 1 million bpd.
President Donald Trump stated that the US has "total control" over the strategic waterway amid heightened rhetoric between Washington and Tehran, while diplomatic talks remain stalled. At the same time, the Trump administration is pushing to ramp up economic pressure on Iran as military actions have yet to bring the regime into compliance. Planned measures include broadening economic sanctions and implementing a naval blockade to restrict Iranian oil exports.
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.
- GBP/USD trades with mild gains around 1.3500 in Thursday’s early Asian session.
- US CPI inflation was mild in July, cooling September Fed rate hike bets.
- Traders await the UK Q2 GDP and US PPI reports later on Thursday for fresh impetus.
The GBP/USD pair edges slightly higher to near 1.3500 during the early Asian trading hours on Thursday. The US Dollar (USD) softens against the British Pound (GBP) on a tame reading of the US inflation report. Traders will closely monitor the preliminary reading of the UK Gross Domestic Product (GDP) for the second quarter (Q2) and the US Producer Price Index (PPI) data, which are due later on Thursday.
A key inflation reading on Wednesday showed prices moderating across a range of goods and services, reducing the possibility of an interest rate hike from the US Federal Reserve (Fed) next month. The US Consumer Price Index (CPI) rose 3.4% YoY in July, versus 3.5% prior, according to the Bureau of Labor Statistics on Wednesday.
Meanwhile, the core CPI, excluding food and energy, increased 2.5% YoY in July, compared to 2.6% in June. Both readings came in line with expectations. On a monthly basis, the headline CPI and core CPI inflation rates were 0.1% and 0.2% in July.
Traders further cut the probability for a September rate hike, lowering the odds to 40%, according to the CME FedWatch tool. Fed officials will get August CPI and jobs reports before their September meeting.
The UK Q2 GDP data will take center stage later on Thursday. The UK economy is projected to grow 0.4% QoQ in Q2 after posting a strong 0.6% GDP increase in Q1. If the report shows a stronger-than-expected outcome, this could provide some support to the Cable.
UK Prime Minister Andy Burnham warned that the UK economy could barely grow next year if disruption in the Strait of Hormuz continues until the end of 2026. Internal modelling from the Treasury suggested UK GDP could see growth as low as 0.3% in 2027, government sources said.
UK data in focus as Scotiabank flags key Thursday releases for GBP
Strategists at Scotiabank note that the recent move in GBP is occurring against a relatively quiet fundamental backdrop, with “fundamental releases [having] been limited.” In their view, attention is now firmly turning to the upcoming UK numbers, as they “continue to highlight the importance of Thursday’s data that include the preliminary (2nd) Q2 GDP figures, and monthly trade and industrial production data,” which are expected to provide the next meaningful catalyst for Pound price action.
Technical Analysis: upside momentum of GBP/USD remains in place
In the daily chart, GBP/USD maintains a bullish near-term bias as it holds above the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-period middle SMA, reinforcing a constructive underlying demand zone just below spot. The Relative Strength Index (14) at 59.4 is bullish-leaning without being overbought, suggesting upside momentum remains in place while price approaches the upper half of the recent volatility envelope.
On the topside, initial resistance is aligned with the Bollinger Bands’ upper band around 1.3570, where upside attempts could start to face profit-taking. On the downside, immediate support is seen at the Bollinger middle band near 1.3425, followed by the 100-day SMA at 1.3410, while a deeper pullback would look toward the lower Bollinger band around 1.3280 as a more distant structural floor.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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.
- DXY struggles to capitalize on the previous day’s goodish rebound from the post-CPI swing low.
- Diminishing odds for an immediate Fed rate hike turn out to be a key factor capping the USD.
- Geopolitical risks and inflation fears stemming from volatile oil prices limit losses for the DXY.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, continues its struggle to build on the momentum beyond the 100.00 psychological mark and edges lower during the Asian session on Thursday. The index, however, remains confined in a nearly two-week-old range, awaiting a fresh catalyst before the next leg of a directional move.
The US Consumer Price Index (CPI) report, released on Wednesday, showed that inflation continued to moderate in July. This comes on top of last Friday's weak US Nonfarm Payrolls (NFP) report and forced traders to further reduce expectations for an immediate interest rate hike by the Federal Reserve (Fed). This, in turn, is seen as a key factor acting as a headwind for the DXY.
Traders, however, remain worried about inflation risks stemming from volatile oil prices due to the US-Iran standoff. In fact, US President Donald Trump said the US had total control over the Strait of Hormuz, even as Iran reiterated its own control over the vital waterway. This keeps geopolitical risks and prospects for some Fed tightening in play, acting as a tailwind for the DXY.
The focus now shifts to the release of the US Producer Price Index (PPI), due later during the North American session. Adding to this, comments from influential FOMC members and further developments surrounding the Middle East crisis should drive US Dollar (USD) demand. In the meantime, the fundamental backdrop warrants caution for aggressive bearish traders.
DXY 4-hour chart
Technical Analysis:
In the four-hour chart, The DXY holds above the 50-period Simple Moving Average (SMA) at 99.82, keeping a mild bullish near-term bias. That said, a sustained break through the 100.00 mark is needed to back the case for further gains. A rejection, however, would negate the bullish tone, though buyers are likely to re-emerge on dips to the 50-period SMA at 99.82.
(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.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 6.7888 compared to the previous day's fix of 6.7882 and 6.7470 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- EUR/USD gains as US Dollar struggles amid moderating US July inflation, reducing September Fed rate hike bets.
- Stalled US-Iran nuclear talks over Gulf conflict resolution may limit upside gains for EUR/USD.
- Stronger Q2 Eurozone 0.4% growth and 2.9% inflation keep a 25bps September ECB hike likely.
EUR/USD halts its three-day losing streak, trading around 1.1530 during the Asian hours on Thursday. The currency pair gains ground as the US Dollar (USD) faces challenges following the release of July's Consumer Price Index (CPI) report. Inflation in the United States moderated across a broad range of goods and services, which significantly cooled expectations for an aggressive Federal Reserve rate hike in September.
According to data released by the Bureau of Labor Statistics, the headline CPI increased 3.4% year-over-year in July, down from 3.5% previously. Similarly, core CPI, which excludes volatile food and energy costs, rose 2.5% year-over-year compared to 2.6% in June. Both readings matched market expectations.
US inflation in line with expectations as energy and food pressures ease
According to TD Securities, July US consumer price inflation "matched expectations," with the headline CPI rising "0.1% m/m (0.074% before rounding; TD: 0.15%, consensus: 0.1%)." The strategists note that the modest increase was "partly explained by still retreating energy prices (gasoline -3% m/m) and slowing food inflation," underscoring the role of softer fuel and food costs in keeping overall price pressures contained.
In light of the new inflation data, market expectations for future Fed policy shifts have adjusted. According to the CME FedWatch tool, interest-rate swaps are now pricing in roughly a 40.1% chance of a rate hike in September. Odds for an October move fell to about 60% from 75% the previous day, with the next potential rate increase not fully priced in until December.
However, upside momentum for the risk-sensitive EUR/USD pair may remain constrained by escalating geopolitical tensions between the US and Iran. A senior Iranian official noted that Washington and Tehran remain at loggerheads over a permanent end to conflicts in the Gulf, reporting zero progress in reviving the interim deal or establishing an implementation timeline.
Meanwhile, the macroeconomic picture in the Eurozone continues to support the European Central Bank's (ECB) hawkish stance. Market-based inflation expectations for the Euro Area over the next year sit around 2.4%, remaining above the ECB’s official 2% target, while actual Eurozone inflation edged up to 2.9% in July. Coupled with a resilient economic outlook, highlighted by a 0.4% expansion in Q2, the strongest pace since early 2025, analysts have grown increasingly optimistic about the region's growth. Although near-term growth may moderate before regaining momentum, investors fully expect the ECB to deliver another 25-basis-point rate hike in September.
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.
- WTI price edges lower to near $82.45 in Thursday’s early Asian session.
- EIA sees a massive surge in US crude oil inventories.
- Talks between the US and Iran appear deadlocked as both sides harden their positions.
West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $82.45 during the early Asian trading hours on Thursday. WTI declines on a larger-than-expected build in US crude oil inventories. Traders will closely monitor the developments surrounding US-Iran talks for fresh impetus.
US crude oil inventories climbed by more than expected last week. According to the US Energy Information Administration (EIA), crude oil stockpiles in the US for the week ending August 7 jumped by 17.422 million barrels, compared to an increase of 2.479 million barrels in the previous week. The market consensus was for a decline of 1.4 million barrels.
Traders await signs of progress toward reopening the Strait of Hormuz. A senior Iranian official stated the US and Iran remain at loggerheads over efforts to agree a permanent end to the war in the Middle East, saying that there had been no progress in talks to revive the interim deal agreed in June and define a time frame to implement it.
US President Donald Trump said on Wednesday that Washington has "total control" over the Strait of Hormuz. Iran pushed back on Trump’s claim, insisting the critical waterway remains blocked. Fears of oil supply disruption could boost the WTI price in the near term.
Rabobank doubts lasting relief from any short-term Hormuz transit deal
Rabobank’s energy strategists caution that hopes for a quick diplomatic fix to shipping disruptions in the Strait of Hormuz may be misplaced. They argue that “a short-term deal to open up the Strait of Hormuz for commercial shipping is unlikely as both sides have very little common ground,” noting that such an arrangement “offers no permanent solutions for the key sticking points that the whole conflict centers around.” Instead, Rabobank expects any agreement to amount to “another 60-day window of free transits through Hormuz while further negotiations resume,” underscoring their view that geopolitical risk around key chokepoints will remain an important driver of Brent and WTI volatility.
Technical Analysis: The bearish outlook of WTI remains intact
In the daily chart, WTI US Oil trades at $81.55. The near-term tone is bearish as price is capped beneath the 100-day Simple Moving Average (SMA) at $86.67 and continues to press under the Bollinger Bands’ 20-day middle band at $81.67, leaving the broader uptrend under pressure. The Relative Strength Index (14) at 52.55 sits in neutral territory, hinting at consolidative momentum rather than a strong directional push, which reinforces the idea of a capped market while these overhead levels remain intact.
On the topside, immediate resistance appears at the Bollinger 20-day SMA around $81.67, followed by the 100-day SMA at $86.67, with the Bollinger upper band near $90.16 forming a higher barrier should buyers regain control. On the downside, initial support is located at the Bollinger lower band near $73.18, where a break would open the way for a deeper corrective slide, while holding above this floor would merely extend the current range-bound consolidation beneath the major moving average ceiling.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Reserve Bank of Australia (RBA) Assistant Governor Chris Kent said on Thursday that interest rate hikes are producing the expected effect. Kent added that further rate increases possible if risks emerge.
Key quotes
Cash rate hikes are achieving their intended impact.
Elevated exchange rate aids in curbing inflation by reducing domestic import prices.
Cash rate near top of range of central estimates of neutral rate from various models.
Neutral rate estimates have significant uncertainty.
Conditions in housing market have softened noticeably in recent months.
Tax changes in federal budget likely curbed demand in established housing market.
Significant investment in data centres and AI infrastructure supports aggregate demand growth.
Board will carefully weigh broad factors influencing financial conditions.
Governor Bullock highlights uncertainty and upside risks on inflation.
Productivity has been very disappointing, makes inflation challenge tougher
Further rate increases possible if risks emerge.
Valuations in certain equity markets appear quite high.
No urgent need to shift reserves into other currencies.
Need history on trimmed mean inflation to focus on monthly CPI report instead of quarterly.
Trimmed mean data needed for a few years, maybe three years.
Board aware a few factors must align for inflation to fall.
Market reaction
At press time, the AUD/USD pair trades 0.03% higher at around 0.7064.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
The United States (US) and Iran remain at loggerheads over efforts to agree a permanent end to the war in the Middle East, Reuters reported on Wednesday. A senior Iranian source said that there had been no progress in talks to revive the interim deal agreed in June and to define a time frame for its implementation.
US President Donald Trump said on Wednesday that Washington has "total control" over the Strait of Hormuz. Iran pushed back on Trump’s claim, insisting the critical waterway remains blocked.
US Central Command (CENTCOM) continued to pressure Tehran, with its port blockade on Wednesday forcing dozens of ships to change course as its fighter jets stepped up operations from the USS George H.W. Bush, deployed in the region.
Elsewhere, Iran-backed Houthi rebels killed six people aboard a cargo ship in the Bab el-Mandeb Strait on Tuesday. Within hours, the US military said it had fired missiles at a container ship that allegedly attempted to breach Washington’s blockade of Iranian ports in the Gulf of Oman.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is up 0.11% on the day at $82.90.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- Gold price trades with mild losses near $4,400 in Thursday’s early Asian session.
- Iran said there was no progress on reviving the interim peace deal with the US.
- Bets for a Fed rate hike fell following tame US CPI inflation data.
Gold price (XAU/USD) declines to around $4,400 during the early Asian session on Thursday, pressured by escalating geopolitical tensions between the United States (US) and Iran. However, the potential downside for the precious metal might be limited as a tame reading of US inflation eased pressure on the US Federal Reserve (Fed) to raise interest rates as soon as next month.
A senior Iranian official said that Washington and Tehran remain at loggerheads over efforts to agree a permanent end to the war in the Gulf, adding that there had been no progress in talks to revive the interim deal agreed in June and define a time frame to implement it.
Renewed tensions in the Middle East and the continued closure of the Strait of Hormuz weigh on the yellow metal as it raises oil-driven inflation fears. “With the Strait of Hormuz still shut, upside inflation risks will remain top of mind for the foreseeable future,” said Seema Shah, chief global strategist at Principal Asset Management.
The latest US July Consumer Price Index (CPI) inflation moderated across a range of goods and services, cooling September Fed rate hike expectations. This, in turn, could help limit gold’s losses. Data released by the Bureau of Labor Statistics on Wednesday showed that the CPI increased 3.4% YoY in July, versus 3.5% prior. Excluding food and energy, the so-called core CPI increased 2.5% YoY in July, compared to 2.6% in June. Both readings came in line with expectations.
Interest-rate swaps are now pricing in nearly a 40.1% odds of a Fed hike in September, though the odds on an October move fell to about 60% from 75% a day earlier, with the next increase fully priced for December, according to the CME FedWatch tool.
Gold upside persists as US CPI fails to revive Fed hike bets
According to TD Securities, “precious metals maintain upside” as the latest US CPI release “did little to reignite the Fed hike pricing.” The bank notes that “recent price action highlights the gold market is increasingly not expecting hikes,” underscoring a supportive backdrop for bullion even as investors reassess the policy outlook in light of softer inflation dynamics.
Technical Analysis: Gold keeps a bullish vibe in the near term
In the daily chart, XAU/USD holds a bullish near-term bias as it extends above the 100-day simple moving average (SMA) and remains comfortably over the Bollinger Bands’ 20-day middle line, suggesting a well-supported uptrend structure. Price is now pressing the upper Bollinger band, while the Relative Strength Index (14) at 67.51 flirts with overbought territory, hinting that the latest advance is strong but increasingly stretched.
On the topside, immediate resistance is defined by the Bollinger upper band at $4,410, where a sustained break would open the way to further gains. On the downside, initial support is seen near the current area, with the 100-day SMA at $4,390 acting as the first meaningful floor, ahead of the Bollinger middle band at $4,140; a deeper pullback toward the lower band at $3,865 would only come into focus if the bullish structure starts to unwind.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Geoff Yu at BNY says a less hawkish Fed has weakened the Dollar, but this has not translated into a broad commodity rally. Institutional investors remain sellers of metals and miners, while EM commodity sovereign debt continues to struggle and commodity FX buying has faded. A sustained recovery, he argues, requires stronger global demand, particularly from China.
Dollar softness not enough for broad rally
"A less hawkish Fed has weakened the dollar but hasn’t generated a broader commodity bid. Commodity FX buying faded quickly, institutional investors remain sellers of metals and miners, and EM commodity sovereign debt has struggled despite lower U.S. real yields. The missing ingredient remains growth: without stronger global demand, particularly from China, easier financial conditions alone aren’t enough to sustain commodity-linked assets."
"Gold aside, there’s still no sign of the broad commodity move needed to revive the “debasement” trade that dominated markets in January and February."
"The message is that Fed credibility matters, but correlated trades across global assets also need a credible growth backstop. That’s difficult to achieve if U.S. data begin to weaken materially. Without stronger global demand, a weaker dollar alone is unlikely to recreate the commodity trade seen earlier in the year."
"The weaker-dollar view is intact, but that doesn’t automatically translate into stronger commodity prices or stronger commodity-linked economies, particularly while U.S. investors remain comfortable with domestic nominal and real yields."
"Commodity economies therefore need to generate their own growth and total-return narrative before they can fully benefit from easier global financial conditions. The earlier combination of a wide yield advantage over the U.S. and strong Chinese demand boosting export revenues isn’t returning."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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