Forex News
Commerzbank’s Tatha Ghose reports that the MNB kept its base rate at 5.50% and maintained the overnight corridor, but seasonally-adjusted inflation suggests real rates may soon turn negative. More importantly, Prime Minister Peter Magyar’s explicit backing for Euro adoption means joining the Euro by 2032 is now Commerzbank’s base case. Ghose argues this political shift could narrow Hungary’s risk premium over coming years.
MNB policy and Euro path drive HUF
"Hungary's National Bank (MNB) left its base rate unchanged at 5.50% yesterday and retained the 4.50%-6.50% overnight corridor. MNB cited high energy prices, rising global yields and financial-market uncertainty, while stressing that it will meet the new 2.5% inflation target within its policy horizon. MNB takes comfort from September inflation rate of 1.6%y/y and core inflation rate of 1.9%y/y."
"Of course, these year-on-year rates are misleading: our preferred seasonally-adjusted month-on-month indicators have re-accelerated in recent months and are now running faster than target. While the rate of core HICP increase did not accelerate in September (see chart on left below), that is only because core inflation may be slower to react to the price shocks which we are dealing with now. In any case, Hungary’s real interest rate, when calculated using month-on-month inflation, may soon dip into negative. This would hardly be consistent with MNB’s stated commitment to maintaining positive real rates, especially when inflation is forecast to accelerate towards 3.1% in 2027."
"The second, more consequential topic in yesterday’s news was about euro adoption. Prime Minister Peter Magyar’s explicit and unconditional support means that euro adoption by 2032 must now become our base-case for the forint outlook. After this timeframe, the forint exchange rate will cease to exist."
"All in all, Magyar provided a valuable signal to the markets: Euro adoption is frequently criticised as taking away crucial monetary policy freedom from a smaller country. Accepting such a compromise in exchange for deeper integration and potential stability via ECB backstop signals a decisive break from Orban-era unilateralism. This ideological convergence alone could narrow Hungary’s risk premium in coming years."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- WTI Oil resumes its uptrend and appreciates nearly 1% on Wednesday, nearing $99.00.
- Increasing attacks on vessels in the Strait of Hormuz and the Houthis' threat to Saudi Arabian oilfields have boosted fears about supply disruptions.
- US-Iran negotiation attempts keep failing as the parties' positions remain far apart.
Crude prices are reversing earlier losses on Wednesday, buoyed by rising concerns about supply disruptions as attacks in the Strait of Hormuz increase and Saudi Arabian Oilfields remain under threat. The US Benchmark West Texas Intermediate (WTI) oil has risen about 1% so far on Wednesday to reach a session high a few cents below $99.00.
Iran’s Revolutionary Guards Corps (IRGC) announced on Tuesday that two tankers were set ablaze after hitting sea mines in the south of the Strait of Hormuz, while attempting to cross the waterway using a route unauthorized by Tehran,
Beyond that, the Iran-backed Houthi militias from Yemen have claimed attacks on Aramco Oil facilities in Yanbu, the Red Sea port used by Saudi Arabia to skip the beleaguered Hormuz corridor.
A US-Iran peace deal remains elusive
Meanwhile, a peace deal between Washington and Tehran remains elusive. A high-ranking Pakistani army official arrived in Tehran on Tuesday in a new attempt to mediate between rivals and prevent a new round of fighting. This news was celebrated by the market and triggered a significant pullback in crude prices during Tuesday's US Trading session
American officials, however, have cooled hopes of any swift peace agreement on Wednesday. The US Secretary of State Marco Rubio affirmed on US media that reaching a peace deal with Iran is extremely difficult and that economic pressure on the Islamic Republic will continue until Tehran continues targeting commercial vessels in the Strait of Hormuz.
The Iranian Foreign Minister, Abbas Araghchi, said on Iranian media that the Strait of Hormuz will remain closed until Washington accepts Iran’s conditions, and in this loop, the conflict heads into its eighth month with no clear end in sight.
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.
- The Indian Rupee gains sharply against the US Dollar after the Tuesday holiday.
- Concerns regarding AI growth and Fed repricing weigh on the US Dollar.
- The RBI continues to defend the Indian currency.
The Indian Rupee (INR) opens sharply higher against the US Dollar (USD) on Wednesday after a holiday the previous day. The USD/INR pair posts a fresh six-week low near 96.55 amid continued underperformance of the US Dollar.
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades almost flat at around 101.77, but is close to its nearly three-week low of 101.50 posted the previous day.
The US Dollar has been under pressure due to weakness in United States (US) Artificial Intelligence (AI)-related stocks and US bond yields being in a corrective phase amid Federal Reserve (Fed) repricing. Financial market participants see further downfall in the US Dollar on the back of these headwinds.
USD slide seen extending as Fed risks reprice and tech jitters build
Strategists at Scotiabank observe that “broad USD weakness looks poised to extend in the short run as markets reassess near-term Fed tightening risks,” pointing to last week’s “heavy net losses for the DXY” as evidence that the “Sep/Oct rally in the index is poised to correct or reverse, potentially towards the 100.80/101.30 area at least.” They add that “a deeper shake out in tech stocks could become a further headwind for the USD, given the dominance of the AI build out in the US growth/inflation narrative,” suggesting that renewed pressure on the sector may reinforce the current Dollar downtrend.
According to the CME FedWatch tool, the Fed is almost certain to leave interest rates unchanged at the policy meeting later this month. A month ago, the tool was showing a meaningful chance that the central bank could hike rates in October meeting too. Traders repriced hawkish Fed bets as several officials indicated no urgency for an another interest rate hike.
RBI doubles down on multi-layered defence to steady the rupee
Economists at DBS Group Research highlight that the Reserve Bank of India (RBI) has adopted a “multi-layered defence strategy to support the rupee this year,” combining “outright intervention in spot/forwards, regulatory action, liquidity steps, administrative measures and moves to curb import-related dollar demand.” According to DBS, the authorities are “likely not done yet and remain ready to take further action, as required,” with RBI Governor Malhotra underscoring the central bank’s resolve in a recent interview, stressing that “The RBI is determined to do whatever is necessary to ensure orderly movement in the foreign exchange market.”
However, DBS doubts sustained INR’s appreciation due to multiple headwinds. DBS says that even after recent policy efforts to shore up the Rupee, “we see limited room for sustained INR appreciation on grounds of manufacturing/trade competitiveness." They add that “a challenging portfolio flows outlook leaves the door open to further gradual rupee depreciation subject to global developments,” noting the currency’s “high sensitivity to oil price movements and risk sentiments.”
Technical Analysis: USD/INR sees more downside towards 94.15
In the daily chart, USD/INR trades at 94.55, keeping a bearish near-term tone as spot holds well below the 20-period Exponential Moving Average (EMA) at 95.5079.
The pair has unwound sharply from its recent highs, and while the Relative Strength Index (RSI) at 28.47 sits in oversold territory, this momentum reading only hints at stretched downside conditions rather than a clear recovery, leaving price action still capped by overhead trend resistance.
On the topside, immediate resistance is located at the 20-period EMA near 95.51, where any rebound would likely face renewed selling pressure. On the downside, the June 25 low at 94.15 is the key supprt level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
- EUR/GBP loses momentum to around 0.8390 in Wednesday’s early European session.
- UK CPI inflation climbed to 3.5% YoY in September, driven by rising fuel prices.
- French unrest raises concerns over the country's worsening fiscal outlook.
The EUR/GBP cross weakens to near 0.8390 during the early European trading hours on Wednesday. The British Pound (GBP) attracts some buyers following hotter UK inflation data. Traders brace for the speech from European Central Bank (ECB) President Christine Lagarde later on Wednesday for fresh impetus.
Data released by the Office for National Statistics (ONS) on Wednesday showed that the UK headline Consumer Price Index (CPI) jumped 3.5% year-over-year (YoY) in September, versus a rise of 3.1% prior. This figure came in above the market consensus of 3.4% growth.
Meanwhile, the core CPI, excluding volatile food and energy items, rose 2.8% YoY in September, compared to an increase of 2.6% in the previous reading, hotter than the forecast of 2.7%. On a monthly basis, the UK CPI came in at 0.4% in September, versus 0.5% prior, beating the estimates of 0.3%.
This UK September inflation report has fueled expectations of an imminent Bank of England (BoE) rate rise, supporting the GBP and acting as a headwind for the cross.
The BoE is widely expected to lift borrowing costs at its next meeting on November 5, which would be its first hike since 2023. Markets are now pricing in a further three rate rises over the next 12 months, according to Bloomberg.
Protests in France add to concerns about the country's worsening fiscal outlook, weighing on the Euro. Reuters reported on Tuesday that French government will reinforce police with troops and mount a huge security operation for more protests planned on Saturday as the government acknowledged failures in its response to last weekend's violence.
"The worries in France are not going away anytime soon," said Tommy von Brömsen, FX strategist at Handelsbanken. "The bearish view on France will stay for a while longer, and there's much more euro weakness to be priced in,” Tommy added.
UK inflation pressures build as energy and food costs set to rise further
Analysts at Danske Bank judge the latest UK inflation release as broadly in line with expectations, noting that “inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would,” with “food price momentum the one bright spot in the data” as food and non-alcoholic beverages CPI “didn’t move at 1.3% y/y.” However, they caution that “underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September,” underscoring a more persistent price dynamic beneath the headline figures.
Looking ahead, Danske Bank warns that “further rises in energy prices are inevitable.” With “Brent spot prices rising again,” they expect “further increases at the pump will hit the UK’s shores,” while “gas and electricity bills will see a big jolt in January” as their Ofgem Price Cap forecasts “point to a near GBP 2,100 annual dual fuel bill in the new year, with declines only likely to come in the second half of 2027.”
The bank also reiterates its long-standing view that “food price pressures would be hard to ignore for much longer.” Despite “fierce supermarket competition,” Danske Bank argues that “higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so.” Overall, they conclude that “today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory,” adding that “despite today’s uncomfortable jump in CPI, there’s more to come.”
Greene flags stalled wage disinflation, keeping GBP rate-cut hopes in check
Greene’s 7.4/10 score matches the historic average on FXS Speechtracker, but the emphasis on stalled wage disinflation and greater risk of second-round effects marks a distinctly hawkish tilt. The focus on pay growth nearer 3.5% and wages remaining above levels consistent with 2% inflation suggests Greene sees persistent domestic price pressures, limiting scope for rapid BOE easing and supporting GBP on the margin.
By highlighting the economy’s “surprising resilience” and noting labor market slack may have peaked, Greene reinforces the idea that demand-side conditions can sustain inflation risks. This combination of resilient activity and sticky wages backs a narrative of the BOE needing to “proactively lean” against inflation, which is likely to be interpreted as hawkish for UK rates and broadly supportive for GBP in the near term.
Technical Analysis: EUR/GBP keeps a bearish vibe under the 100-day SMA
In the daily chart, EUR/GBP extends a bearish near-term bias as spot holds beneath the 20-period Bollinger middle band and the 100-day moving average. Price is also well below the upper Bollinger band, underscoring a downside-skewed structure, while the Relative Strength Index (14) languishes near 17, signaling deep oversold conditions that could slow, but not yet reverse, the current slide.
On the topside, initial resistance aligns with the Bollinger middle band at 0.8485, ahead of stronger supply at the 100-day moving average near 0.8560 and the upper Bollinger band at 0.8612. On the downside, the lower Bollinger band around 0.8365 offers immediate support; a sustained break below this floor would open the way to fresh lows in the broader downtrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
UOB strategists Quek Ser Leang and Lee Sue Ann observe that USD/CHF fell sharply before rebounding, leaving overall momentum subdued. They expect intraday trading to remain range-bound, but their 1–3 week view still favours gradual Dollar weakness toward 0.8200, as long as prices stay below a revised strong resistance level, while the longer-term outlook allows for a moderate rebound.
Dollar-Swiss capped with room to ease
"24-HOUR VIEW: We indicated yesterday that “the slight increase in upward momentum suggests USD could edge higher today, but any advance should stay within a 0.8240/0.8285 range.” The subsequent price movements did not unfold as expected. USD fell sharply, but briefly, to 0.8220 and then rebounded to close at 0.8246 (-0.23%). The price movements did not lead to any increase in downward momentum. Today, we expect USD to trade in a range, most likely between 0.8225 and 0.8270."
"1-3 WEEKS VIEW: Last Friday (16 Oct, spot at 0.8280), we highlighted that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225.” After USD subsequently fell to a low of 0.8215, we highlighted on Monday (19 Oct, spot at 0.8240) that USD “could decline further to 0.8200.” Although USD has not been able to make much headway on the downside since then, we will continue to hold the same view as long as USD holds below 0.8290 (‘strong resistance’ level previously at 0.8300)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/IDR gains support as the Indonesian Rupiah struggles following Bank Indonesia's rate decision.
- BI decided to hold its benchmark rate at 5.75%, against expectations of increasing it to 6.0%.
- FedWatch Tool suggests that markets price in an 83.9% chance of a rate pause next week.
USD/IDR extends its gains for the third successive day, trading around 18,040 during European hours on Wednesday. The pair appreciates as the Indonesian Rupiah (IDR) faces challenges after Bank Indonesia (BI) decided to keep its benchmark rate unchanged at 5.75% for a fourth straight policy meeting, defying market expectations for a rate hike to 6.0%. The central bank hiked its overnight deposit rate by 25 bps to 5.00% and kept the lending facility rates unchanged at 6.50%.
The USD/IDR pair appreciates as the US Dollar (USD) receives support from safe-haven demand amid rising oil prices heighten global inflation concerns. Oil prices rise as traders carefully evaluate mixed signals regarding diplomatic engagements between the United States (US) and Iran. Although negotiations remain active, market sentiment faced headwinds following high-level meetings in Tehran, where Pakistan’s army chief, Field Marshal Asim Munir, met with senior Iranian diplomatic and military leaders to discuss bilateral ties and the status of talks with Washington. A diplomat involved in the discussions clarified that while conflict resolution efforts are ongoing, reports of an imminent final agreement are premature.
Financial markets are closely gauging the Federal Reserve's (Fed) next moves. According to the CME FedWatch Tool, traders currently price in an 83.9% probability that the Fed will keep interest rates on hold next week, alongside a 90% chance of a rate hike in December. However, Fed Chair Kevin Warsh maintained a neutral stance, emphasizing that he does not "prejudge" interest rate decisions and leaving markets without a definitive signal on whether the central bank will raise or hold rates steady at its upcoming October policy meeting.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Deutsche Bank’s Chief UK Economist Sanjay Raja highlights that United Kingdom (UK) inflation is on an upward trajectory, with headline Consumer Price Index (CPI) at 3.5% and core CPI at 2.8%. Services CPI has also risen, while food price momentum is the main bright spot. Raja warns of further energy and food price increases and anticipates firmer index-linked services prices, complicating the Bank of England’s (BoE) policy stance.
Inflation outlook and BoE risks
"The good news? Inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would with food price momentum the one bright spot in the data (food and non-alcoholic beverages CPI didn’t move at 1.3% y/y). The bad news? Underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September."
"Looking ahead, further rises in energy prices are inevitable. With Brent spot prices rising again, further increases at the pump will hit the UK’s shores."
"Gas and electricity bills will see a big jolt in January too – our Ofgem Price Cap forecasts point to a near GBP 2,100 annual dual fuel bill in the new year, with declines only likely to come in the second half of 2027."
"We’ve also long argued that food price pressures would be hard to ignore for much longer. Despite fierce supermarket competition, higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so."
"Today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory. Despite today’s uncomfortable jump in CPI, there’s more to come."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD bulls remain on the sidelines as bullish oil prices continue to underpin the Loonie.
- Geopolitical risks and Fed hike bets offer some support to the USD, limiting further losses.
- Weakness below the 50% Fibo. is needed to reaffirm a short-term bearish technical setup.
The USD/CAD pair struggles to capitalize on the previous day's modest bounce from the 1.4030 area, or a nearly one-month low, as rising oil prices underpin the commodity-linked Loonie and cap the upside. Bears, however, seem hesitant, with spot prices holding steady around the 1.4050 area during the early European session on Wednesday amid a modest US Dollar (USD) uptick.
Investors seem convinced and are pricing in around a 90% chance that the US Federal Reserve (Fed) will raise borrowing costs again in December amid inflation fears stemming from volatile crude oil prices. Moreover, the uncertainty surrounding US-Iran peace talks keeps the geopolitical risk premium in play, assisting the safe-haven USD to recover slightly from a three-week low and acting as a tailwind for the USD/CAD pair. Traders might also refrain from placing aggressive directional bets ahead of next week's key central bank events – the Bank of Canada (BoC) rate decision and the outcome of a two-day FOMC meeting on Wednesday.
From a technical perspective, the overnight break below the 200-period Simple Moving Average (SMA) on the 4-hour chart was seen as a fresh trigger for bearish traders. Furthermore, the Relative Strength Index (RSI) is lingering near 31, and Moving Average Convergence Divergence (MACD) is hovering slightly below the zero line, which together suggest that rallies are likely to be capped while sellers retain control. However, a break below 1.4030, representing the 50% Fibonacci retracement level of the September-October rally, is needed to reaffirm the negative bias and back the case for a further depreciating move for the USD/CAD pair.
The next relevant support is located at the 61.8% retracement at 1.3968, with deeper levels seen at 1.3876, then the 1.3760 zone, which, if broken, would expose the broader corrective floor of the current Fibonacci cycle. On the topside, initial resistance appears at the clustered 200-period SMA and 38.2% retracement between 1.4079 and 1.4096, followed by the 23.6% level at 1.4175 and the recent swing high around 1.4303.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
USD/CAD 4-hour chart
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.
Here is what you need to know on Wednesday, October 21:
Fİnancial markets remain relatively quiet midweek amid a lack of key macroeconomic data releases. Although the British Pound shows some volatility following the inflation data, it struggles to make a decisive move in either direction against its peers.
Pound Sterling Price This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.33% | -0.51% | 0.05% | -0.42% | -0.87% | -0.38% | -0.09% | |
| EUR | 0.33% | -0.14% | 0.43% | -0.03% | -0.47% | -0.03% | 0.27% | |
| GBP | 0.51% | 0.14% | 0.57% | 0.13% | -0.29% | 0.12% | 0.47% | |
| JPY | -0.05% | -0.43% | -0.57% | -0.46% | -0.92% | -0.43% | -0.02% | |
| CAD | 0.42% | 0.03% | -0.13% | 0.46% | -0.46% | 0.08% | 0.38% | |
| AUD | 0.87% | 0.47% | 0.29% | 0.92% | 0.46% | 0.42% | 0.74% | |
| NZD | 0.38% | 0.03% | -0.12% | 0.43% | -0.08% | -0.42% | 0.34% | |
| CHF | 0.09% | -0.27% | -0.47% | 0.02% | -0.38% | -0.74% | -0.34% |
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 British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The UK's Office for National Statistics (ONS) reported that annual inflation, as measured by the change in the Consumer Price Index (CPI), rose to 3.5% in September from 3.1% in August. This print came in higher than the market expectation of 3.4%. The core CPI, which excludes volatile food and energy prices, rose by 2.8% following the 2.6% increase recorded previously. Additional details of the report showed that the Retail Price Index increased by 3.9% on a yearly basis, as anticipated. After gaining about 0.5% and reaching its highest level since mid-September above 1.3400 on Tuesday, GBP/USD trades flat near 1.3370 in the European morning on Wednesday. EUR/GBP trades marginally lower on the day below 0.8400, while GBP/JPY stays virtually unchanged at 211.50.
The US Dollar (USD) Index closed in negative territory on Tuesday as risk flows dominated the action in financial markets following the bullish opening seen in Wall Street. Early Wednesday, the USD Index clings to small gains but stays below 102.00, while US stock index futures gain between 0.1% and 0.5%. After the closing bell, SpaceX announced a 161% revenue growth for the the third quarter, driven by a ninefold growth in its artificial intelligence business, as per CNBC. Tesla will report third-quarter earnings figures after the closing bell on Wednesday.
Iran's Foreign Minister Abbas Araghchi said that indirect negotiations with the US are continuing through intermediary countries. Araghchi further explained that Washington agreed to Iran's seven-day proposal but sought to add several additional conditions, although he declined to disclose their details. Araghchi also reportedly demonstrated that the US cannot be trusted in the negotiation process. Following Tuesday's volatile action, crude Oil prices edge higher on Wednesday, with the barrel of West Texas Intermediate (WTI) rising about 1% on the day.
Brent swings as Middle East negotiation headlines are challenged
Analysts at Deutsche Bank note that yesterday’s Oil trade was dominated by headline-driven volatility around Middle East negotiations. They point out that Brent “dropped from around $112 to $106 in the early London afternoon after several unconfirmed reports indicated that Qatar and Pakistan had put forward a proposal that could potentially revive talks aimed at ending the conflict in the Middle East.”
However, Deutsche Bank adds that the move quickly reversed as the narrative shifted. “Later, Brent crude started to climb again, as the story was discredited by a diplomat involved in negotiations.” Citing Bloomberg, they highlight that “while talks to reach a deal are ongoing, reports that the negotiating sides were close to a solution were false,” helping Brent retrace much of its earlier decline.
USD/JPY extends its sideways grind at around 158.00 in the European morning on Wednesday. Japanese Finance Minister (FM) Satsuki Katayama said on Wednesday that the government is coordinating closely with the Bank of Japan (BoJ) and there is no major divergence on inflation outlook and policy. Earlier in the day, the data from Japan showed that Exports and Imports rose by 16.7% and 18.9%, respectively, on a yearly basis in September. Both of these figures fell short of analysts' forecasts.
EUR/USD continues to fluctuate in a relatively tight range above 1.1200 for the third consecutive day on Wednesday. European Central Bank (ECB) President Christine Lagarde is scheduled to deliver a speech later in the day.
Gold stays on the back foot after closing marginally lower on Tuesday and closes in on $4,100 early Wednesday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Danske Research Team notes US equities ended modestly higher, with the S&P 500 up 0.3%, Nasdaq flat and Russell 2000 outperforming. Sector performance showed a defensive bias, led by healthcare, while tech, industrials and communication services lagged on concerns about the AI investment cycle. The VIX fell toward 17, suggesting easing market anxiety, though strong AI-related earnings later challenged this rotation.
Defensive sectors lead while AI trade swings
"US equities ended yesterday modestly higher, although the headline performance masked another rotation beneath the surface. The S&P 500 gained 0.3%, the Nasdaq was flat, while the Russell 2000 outperformed with a 1.7% advance."
"Sector performance again had a defensive tilt, with healthcare leading the gains, while tech, industrials and communication services struggled amid lingering concerns over the AI investment cycle."
"The VIX declined further to 17.3, having approached 20 last week, pointing to a gradual easing in market anxiety."
"After hours, and overnight developments challenge yesterday's rotation story though, as strong earnings have brought the AI trade back into focus."
"SpaceX and Super Micro Computer both delivered results exceeding of expectations, with their shares rising 8% and 16%, respectively, in after-hours trading."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
