Forex News
- WTI eases as Saudi Arabia and the UAE led the supply increase, boosting regional shipments to their highest levels since late February.
- Ongoing uncertainty regarding US-Iran negotiations continues to keep market volatility and geopolitical risks elevated.
- Iranian officials expressed skepticism about halting hostilities or reopening the Strait of Hormuz before November's US midterms.
West Texas Intermediate (WTI) oil has pared its recent gains from the previous day, trading around $91.10 per barrel during European hours on Tuesday. Crude oil prices have eased following a September rebound in exports from key Middle East producers. According to Kpler data reported by Reuters, shipments from the region climbed to 16.328 million barrels per day (bpd), marking their highest volume since conflict erupted between Iran and the US-Israeli alliance in late February. This uptick in supply was primarily driven by boosted production and exports from Saudi Arabia and the United Arab Emirates.
Despite the recent price drop, oil prices could quickly rebound due to persistent uncertainty surrounding US-Iran negotiations. Iranian officials have voiced skepticism about resolving hostilities or reopening the strategic Strait of Hormuz before the US midterm elections in November, keeping geopolitical risks elevated across the region.
Diplomatic efforts remain active, however, as Iranian Foreign Minister Abbas Araqchi stated that Tehran expects a US response to its latest proposal regarding the Strait of Hormuz. US and Iranian representatives engaged in separate mediator talks recently, with upcoming discussions slated to evaluate an amended version of Iran's original offer.
Although recent meetings in New York yielded limited progress, punctuated by President Donald Trump's rejection of Tehran's initial proposal, reports indicate the US administration may still consider sanctions relief and unfreezing Iranian assets if substantial advances are made toward a nuclear agreement.
Oil stays in the spotlight as US-Iran tensions drive fresh gains
Strategists at Scotiabank note that the market’s primary focus “remains centered on oil prices,” with the latest advance in crude attributed to geopolitical developments. They highlight that the recent gains “reflect the renewed deterioration in US/Iran negotiations and President Trump’s rejection of last week’s Iranian proposal to reopen the Strait of Hormuz,” keeping energy markets firmly at the forefront of investor attention.
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.
Scotiabank’s analysts highlight a softer Canadian Dollar, trading defensively with G10 peers. Wider US–Canada yield spreads remain a headwind as Bank of Canada (BoC) expectations firm, with October priced for 14 bps and December for 37 bps of tightening. Their fair value estimate for USDCAD stands at 1.4068.
Yield spreads keep pressure on Canadian Dollar
"The outlook for relative central bank policy remains a dominant driver and the continued widening in US-Canada yield spreads presents a meaningful headwind for the CAD."
"Rate expectations for the BoC are firming, with the October meeting priced for 14bpts of tightening and the December meeting priced for a cumulative 37bpts."
"In terms of data, this week’s release calendar is limited to the monthly GDP figures for July, expected to show a flat m/m print and a deceleration in the annual pace of growth from 2.0% to 1.4%."
"Our FV estimate for USDCAD is currently at 1.4068."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/JPY drifts lower as the AUD weakens in reaction to the RBA’s cautious rate hike on Tuesday.
- Intervention fears and hawkish BoJ bets underpin the JPY, further exerting pressure on the cross.
- The bearish fundamental backdrop backs the case for a further depreciating move for spot prices.
The AUD/JPY cross attracts fresh sellers following the post-Reserve Bank of Australia (RBA) uptick to the 110.70 region and drops to an over two-week low during the early part of the European session on Tuesday. Spot prices currently trade just below the 110.00 psychological mark, down around 0.45% for the day, and remain within striking distance of the monthly trough amid a combination of negative factors.
Traders reacted little to the RBA's 25 basis points (bps) rate hike earlier today as the decision was already priced in the market. The Australian Dollar (AUD), however, turned lower as RBA Governor Michele Bullock, speaking at the post-meeting press conference, failed to reinforce expectations that inflation developments were likely to require additional tightening. Traders were quick to trim their bets for more rate hikes, undermining the AUD and exerting pressure on the AUD/JPY cross.
Meanwhile, Japan's top currency diplomat Atsushi Mimura and Finance Minister Satsuki Katayama warned markets to take joint US-Japan messaging on FX depreciation seriously. In fact, US President Donald Trump conveyed his concerns about the Japanese Yen's (JPY) depreciation to Prime Minister Sanae Takaichi on the sidelines of the United Nations General Assembly. Apart from this, hawkish Bank of Japan (BoJ) bets favor JPY bulls, backing the case for a further AUD/JPY decline.
In fact, Minutes from the BoJ's July monetary policy meeting, released on Monday, revealed that policymakers debated the need for faster interest rate hikes amid growing concern over mounting inflation risks. This, in turn, lifted expectations that the BoJ will hike again as soon as October or December. In contrast, the RBA’s cautious stance could undermine the Aussie, suggesting that the path of least resistance for the AUD/JPY cross is to the downside and any attempted recovery is likely to be sold into.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.18% | 0.03% | 0.13% | 0.41% | 0.33% | 0.28% | |
| EUR | -0.24% | -0.07% | -0.21% | -0.13% | 0.16% | 0.08% | 0.03% | |
| GBP | -0.18% | 0.07% | -0.15% | -0.03% | 0.22% | 0.15% | 0.09% | |
| JPY | -0.03% | 0.21% | 0.15% | 0.11% | 0.37% | 0.29% | 0.24% | |
| CAD | -0.13% | 0.13% | 0.03% | -0.11% | 0.26% | 0.19% | 0.14% | |
| AUD | -0.41% | -0.16% | -0.22% | -0.37% | -0.26% | -0.07% | -0.13% | |
| NZD | -0.33% | -0.08% | -0.15% | -0.29% | -0.19% | 0.07% | -0.05% | |
| CHF | -0.28% | -0.03% | -0.09% | -0.24% | -0.14% | 0.13% | 0.05% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
- US stock futures show mixed results as elevated oil prices sustain inflation concerns.
- Markets slid Monday as surging Treasury yields past 5% signaled further Federal Reserve rate hikes.
- Traders await key economic updates this week, including PCE inflation and Nonfarm Payrolls data.
Dow Jones futures fall by 0.16% to trade near 51,750 during European hours on Tuesday. Meanwhile, S&P 500 futures inch lower by 0.03% to trade around 7,740, while Nasdaq 100 futures gain 0.12% to trade near 30,600.
US stock futures post mixed results as ongoing uncertainty surrounding US-Iran negotiations kept oil prices elevated. These sustained energy costs have heightened market expectations that the Federal Reserve (Fed) will need to tighten monetary policy further to combat persistent inflation.
During regular US trading on Monday, major US indices closed lower across the board. The Dow Jones Industrial Average fell 0.67%, the S&P 500 declined 0.77%, and the tech-heavy Nasdaq Composite dropped 0.92%. The market downturn came as expectations of additional rate increases pushed Treasury yields to fresh multi-year highs, with both 10-year and 30-year yields climbing above 5%. Following the central bank's initial rate hike earlier this month, its first in three years, the CME FedWatch Tool indicates that money markets are currently pricing in roughly a 70% probability of another Federal Reserve rate increase in October.
Market attention now shifts toward upcoming US economic indicators for signals regarding the future path of monetary policy. Key data releases scheduled for later this week include Wednesday’s Personal Consumption Expenditures (PCE) inflation report and Friday’s Nonfarm Payrolls (NFP) report.
Equities retreat as US tech leaders underperform
According to strategists at Deutsche Bank, the recent rise in US yields and Oil prices has fed through into equity markets, with “equities on both sides of the Atlantic” coming under pressure and “the major indices generally moving lower.” In the US, they highlight that the S&P 500 “fell in a broad-based decline,” closing down “-0.77%,” with sentiment further undermined by “a larger fall for the Magnificent 7 (-1.72%),” underscoring renewed investor caution toward the market’s key growth leaders.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
Scotiabank’s Global FX Strategy team, led by Shaun Osborne and Eric Theoret, notes broad Dollar strength versus most G10 currencies, with focus on Oil, US yields and the Federal Reserve rate path. The team stresses that DXY gains since early September are fundamentally driven by 2-year yield spreads.
Broad G10 defensive tone versus Dollar
"The broader tone is somewhat defensive, leaning toward mild risk aversion as US equity futures show modest losses while US bond yields remain well supported with the 10Y hitting a fresh marginal high—extending above 5.2% to reach its highest level since 2007."
"The shape of the curve is also starting to garner some attention, given the renewed flattening and its implications for the broader USD."
"For the DXY, we continue to highlight that the gains from early September have been fundamentally driven, with spot largely moving in tandem with our fair value estimate based on 2Y spreads—currently at 100.5 (vs. spot just above 101)."
"The recent gains have pushed the DXY toward the June 24 high that marked the local peak and 2026 YTD high."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
European Central Bank (ECB) Governing Council member and Governor of the National Bank of Slovakia (NBS), Peter Kazimir, said during the European trading session on Tuesday that the interest rate hike at the policy meeting earlier this month was “unavoidable”. Kazimir added that energy prices remained key factor for higher inflationary pressures.
Comments
Rate hike was unavoidable.
Energy prices remain key factor.
Key for me will be January repricing.
We need flexibility, we have enough time.
Market reaction
The Euro (EUR) was seen under pressure against the US Dollar (USD) during the release of ECB Kazimirs comments; however, the pressure seems to be coming from further appreciation in the US Dollar. As of writing, EUR/USD is down 0.21% to near 1.1345.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
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 European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
OCBC’s Christopher Wong reports USD/IDR briefly traded back towards 18,000 as higher Oil prices, elevated US Treasury yields and a firm Dollar weighed on the Indonesian Rupiah. Bank Indonesia has shifted intervention toward NDF and DNDF, seen as more effective and less reserve-intensive. OCBC warns that structural external pressures and a less favourable environment may keep risks skewed to further USD/IDR gains.
BI intervention mix and external drag
"BI Governor Destry Damayanti said that BI has reduced spot intervention to around 30% of its total FX intervention, with greater use of offshore NDF and domestic DNDF as these instruments are less reserve-intensive and, in BI’s assessment, more effective."
"This should not be read as BI stepping back from IDR stabilisation, but rather a change in the intervention mix."
"Near term, a less favourable external environment may continue to weigh on IDR. Some easing in these external pressures (i.e. US Treasury yields, oil and USD) would be needed for the IDR to stabilise more convincingly."
"USDIDR last closed at 17975 levels. Bullish momentum on daily chart intact while RSI rose into near overbought conditions. Risks still skewed to the upside."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold gains some positive traction on Tuesday, though the upside potential seems limited.
- Fed rate hike bets and oil-driven inflation fears keep US bond yields near multi-year highs.
- Geopolitical uncertainties further underpin the USD, which should cap the precious metal.
Gold (XAU/USD) clings to modest recovery gains through the first half of the European session, albeit it lacks follow-through and remains below $4,150. Moreover, the bearish fundamental backdrop keeps the precious metal within striking distance of the lowest level since August 4, around the $4,100 neighborhood touched on Monday, and warrants caution before positioning for any meaningful appreciation. The US Federal Reserve's (Fed) hawkish outlook, elevated US bond yields, and geopolitical risks keep the US Dollar (USD) pinned near a two-month top, which, in turn, is seen capping the bullion.
The US central bank delivered the widely expected 25 basis point (bps) rate hike—its first in over three years—earlier this month and signaled a firm commitment to suppressing sticky inflation. Adding to this, a slew of influential FOMC members stated that another interest rate increase may be appropriate before the end of 2026. According to CME Group's FedWatch Tool, traders are pricing in a 70% chance that the Fed would raise borrowing costs again in October amid inflation risks stemming from higher energy prices due to the Middle East conflict.
Cook flags persistent inflation risks from AI and geopolitics, keeps Fed bias hawkish
Fed’s Cook delivers a slightly more hawkish-than-usual tone, with the FXS Speechtracker score at 7/10, marginally above the established baseline of 6.9/10. Cook highlights continued inflation pressure in coming months from artificial intelligence and Middle East conflict, stressing that any future rate adjustments will depend on incoming inflation and labor data, even as the labor market is described as well positioned to absorb higher rates. While Cook acknowledges that AI-driven productivity should bring modest disinflation over the next few years, the warning that these gains will not arrive in time to offset broadening inflation this year reinforces a near-term hawkish bias and keeps DOLLAR-supportive risks in focus.
The FXS Fed Sentiment Index slipped by 0.63 points to 146.89, indicating a modest pullback in perceived hawkishness despite the speech’s above-baseline score on the FXS Speechtracker. With the FXS Fed Sentiment Index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory, suggesting that any future rate hikes or a prolonged higher-for-longer stance continue to underpin DOLLAR strength even as market expectations cool slightly at the margin.
In the latest development, US President Donald Trump rejected a peace proposal from Iran to resolve their military conflict and reopen the Strait of Hormuz immediately on meeting their terms. Furthermore, Trump denied a report by the news outlet Axios that he offered Iran sanctions relief and the release of frozen funds in return for concrete Iranian steps regarding the nuclear program. This keeps the geopolitical risk premium in play and continues to support crude oil prices, fueling inflationary concerns and pushing US bond yields to multi-year highs.
In fact, the yield on the 30-year US government bond shot to its highest level since mid-May 2004, while the benchmark 10-year Treasury yield touched its highest since mid-June 2007 and the rate-sensitive 2-year yield rose to the highest since May 2024. This, in turn, favors USD bulls and makes it prudent to wait for strong follow-through buying before confirming that the Gold price has bottomed out. Traders might also opt to wait for this week's important US macro releases before placing aggressive directional bets on the XAU/USD pair.
The US Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge – is due on Wednesday, along with the final Q2 GDP print. This will be followed by the US ISM Manufacturing PMI on Thursday, though the focus will remain glued to the closely watched US Nonfarm Payrolls (NFP) report on Friday. Apart from this, speeches from influential FOMC members would be scrutinized for more cues about the Fed's future policy path, which, in turn, will drive USD demand and provide some meaningful impetus to the Gold price.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair maintains a bearish near-term tone following the recent breakdown below the 200-day Exponential Moving Average (EMA) at $4,310 and the mid-range Fibonacci retracement levels. The metal has slipped back under the 61.8% retracement at $4,227, keeping it confined within the lower half of the recent range. Meanwhile, the Moving Average Convergence Divergence (MACD) shows a negative reading at 26.21, and the Relative Strength Index (RSI) at 36.40 hovers just above oversold territory, hinting at persistent downside pressure but with scope for intermittent corrective bounces.
Any further recovery, however, might face initial resistance at the 61.8% Fibo. retracement at $4,227, ahead of a dense barrier formed by the 200-day EMA at $4,310 and the 50% retracement at $4,316. Further hurdles emerge at $4,406 and $4,517 before the recent cycle high near $4,696. On the downside, immediate support appears at the 78.6% retracement at $4,099, with a deeper floor at the prior swing low around $3,937. A decisive break below the latter would reinforce the prevailing bearish bias, while sustained trading above $4,227 would be needed to start easing the downside pressure.
(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.
- EUR/CAD drops ahead of European Commission data and ECB President Lagarde's Frankfurt address.
- ECB President Lagarde signaled a measured policy stance, noting energy costs have not boosted wage growth.
- Canadian Dollar gains support from rising oil prices driven by ongoing US-Iran geopolitical uncertainty.
EUR/CAD halts its three-day winning streak, trading around 1.6100 during the European hours on Tuesday. The currency cross experiences downward pressure as the Euro (EUR) softens ahead of key economic data releases from the European Commission and an upcoming address by European Central Bank (ECB) President Christine Lagarde at the 2026 ECB/ESCB Legal Conference titled "Independence, not isolation: central banks and their connections with other authorities" in Frankfurt.
ECB President Lagarde previously told a European Parliament committee that a measured monetary policy remains appropriate, citing a lack of evidence that rising energy prices are driving wage growth.
Meanwhile, the Canadian Dollar (CAD) is finding strength on higher crude oil prices, compounding losses for the cross. Oil markets gained traction as ongoing uncertainty surrounding US-Iran negotiations overshadowed news that oil flows have resumed through Saudi Arabia's East-West pipeline.
Geopolitical risks remain high, with Iranian officials expressing skepticism about resolving to halt Middle East hostilities or reopen the strategic Strait of Hormuz before the US midterm elections in November. While recent talks in New York saw limited progress—highlighted by President Donald Trump's rejection of Tehran’s latest proposal—reports suggest Trump may still consider sanctions relief and the unfreezing of Iranian assets if meaningful strides toward a nuclear agreement are achieved.
CAD positioning turns more negative as Rabobank flags renewed net shorts
Strategists at Rabobank highlight a notable shift in investor positioning, observing that "CAD net shorts have picked up again, after collapsing the prior two weeks." This renewed build‑up in bearish bets on the Loonie underscores a more cautious stance toward the currency following its recent respite.
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.
Christopher Wong at OCBC notes Gold has extended its decline to a seven-week low, pressured by higher Oil prices, firm US Treasury yields and a stronger Dollar. The break below $4,200 has intensified technical selling, with near-term direction tied to Oil and rates. OCBC sees risks skewed to the downside.
Oil and yields drive bearish bias
"Gold extended its decline, falling to a 7-week low as the recent rise in oil prices reinforced inflation concerns and expectations for further Fed tightening. Higher US Treasury yields and a firm USD added to the pressure, while the break below $4,200 likely exacerbated technical selling."
"Softer US data (such as core PCE, NFP) or some easing in yields could help Gold stabilise, while another leg higher in oil and yields would keep downside pressure intact."
"Mild bearish momentum on daily chart intact while RSI fell. Risks remain skewed to the downside."
"Failure to reclaim back above $4,300 – $4,350 (21, 50, 100 DMAs) may see bearish pressure continue. Next support at $4,100, $4,000 and $3,944 (previous low). Resistance at $4,300/50, $4,460 levels."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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