Forex News
TD Securities argues Canadian Dollar (CAD) is set to gain prominence as a global carry funding currency, with its carry/vol profile already comparable to Japanese Yen (JPY). They note USD/CAD has rallied to their 1.39 year-end forecast after new United States (US) tariffs and see further upside versus fair value, expecting more bearish catalysts as tariff impacts hit data and markets fade the Bank of Canada's (BoC) recent hawkish narrative.
Tariff shock shifts CAD toward funder
"After the July JPY intervention, the FX market has been gradually turning to the CHF as a new carry funder candidate."
"As we discussed in a recent note, in the case gold price stays supported and the EU-SZ rate differential remains stable, CHF is unlikely to see sustained spot downtrend like the JPY did."
"Instead, we believe the CAD's role as a global carry funding currency could gain more prominence."
"The CAD's carry/vol ratio profile is already comparable to the JPY."
"Following the latest Section 338 tariffs disputes with the US, USD/CAD has rallied to our 2026 year-end forecast of 1.39 but still has more room to rise vs short-term fair value. Unlike the JPY where the upcoming BoJ meeting could serve as a bullish catalyst, the CAD will likely see more bearish catalysts in the near-term as impacts of the latest tariffs shock on sentiment and production feeds into domestic economic data and market fades the hawkish BoC narrative from the September meeting."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Commerzbank’s Thu Lan Nguyen notes Gold has stabilised around USD 4,400 per ounce, with markets now focused on upcoming US inflation data as the key driver for the Federal Reserve’s September decision. Futures imply roughly a 60% probability of a rate hike, leaving room for a sharp repricing and a potentially volatile week for Gold prices.
Inflation print and Fed expectations
"The price of gold has stabilised at around 4,400 USD per troy ounce in recent days. Last Friday’s surprisingly strong US labour market data only caused a brief dip."
"The reason is that this week’s upcoming US inflation data is seen as the decisive factor for the Fed’s forthcoming interest rate decision. Fed Governor Christopher Waller also more or less confirmed this recently."
"At present, the market is therefore quite divided regarding the Fed’s September meeting and is pricing in a roughly 60% chance of an interest rate hike."
"As such, there is still considerable scope for a correction in interest rate expectations should the inflation data surprise significantly on the upside or downside."
"A potentially volatile week therefore lies ahead for the price of gold."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
USD/JPY has suffered a sharp technical breakdown below the key 155.00 psychological threshold, extending losses toward 153.00 amid thin holiday liquidity, unwinding carry trade positions, and renewed political focus on Japan's monetary framework. The drop through prior intervention-driven support levels has caught markets off guard, shifting near-term focus to deeper technical support targets near 152.00 and 150.00. While analysts acknowledge the move is driven primarily by idiosyncratic Japanese Yen (JPY) dynamics rather than a fundamental collapse in broad US Dollar (USD) sentiment, the breach of 155.00 risks establishing a new lower trading corridor for the pair.
Shift below 155.00 psychological level threatens new lower range
Teppei Ino at MUFG stresses that the pair's fall below 155.00 — which previously marked key support following multiple intervention episodes — represents a major technical turning point. Remarks from US Treasury Secretary Scott Bessent urging Japan to move away from reflationary policy settings have further accelerated position unwinding, putting deeper retracement levels firmly in sight.
"The USD/JPY broke below the psychologically important 155 level on 7 September... From a technical perspective, the pair also briefly fell below the 38.2% retracement of its rise... at above 154.50. This brings the January low of below 152.50 and the 50% retracement level of above 151.50 into view. At a minimum, unless the USD/JPY quickly recovers above 155, the market could shift into a new range in which 155 is viewed as the upper end."
Carry trade unwinding and holiday liquidity push Yen rally toward 150.00
Taking a tactical view, Francesco Pesole, Frantisek Taborsky, and Chris Turner at ING emphasize that while thin liquidity amplified the sell-off down to 153.00, standing in the way of this momentum is dangerous. The potential for further carry trade unwinding could swiftly push the pair toward major support at 152.0 and eventually 150.0, even though solid US payrolls and high energy prices continue to offer underlying support for the greenback.
"Despite short-term fundamentals suggesting the move is overdone, it remains risky to stand in its way, particularly given the scope for further carry trade unwinding. The next meaningful support only comes in at 152.0... A break below that could quickly open the way towards 150.0... We continue to think the bullish case for the dollar will prove stronger in the near term, although Friday’s US CPI release remains a clear risk event."
Based on the combined analysis of both institutions, USD/JPY faces severe near-term technical pressure as position unwinding drives the pair well beneath its 155.00 floor. MUFG cautions that a failure to swiftly reclaim 155.00 will solidify that level as a firm resistance ceiling for a lower trading range toward 152.50 and 151.50. Meanwhile, ING maintains that while broad US economic fundamentals — including $100 Oil and firm labor figures — should eventually reassert US Dollar strength, the immediate momentum of the Japanese Yen rally leaves the door open for further downside testing toward 152.00 and 150.00.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold slips from its intraday high as the US Dollar recovers some ground.
- Fed rate-hike expectations keep the near-term outlook challenging for bullion.
- A Head-and-Shoulders pattern is taking shape on the daily chart, with the neckline around $4,350.
Gold (XAU/USD) remains on the back foot at the start of American trading hours on Tuesday, giving back earlier gains as a modest rebound in the US Dollar (USD) and rising Oil prices weigh on the precious metal. At the time of writing, XAU/USD trades around $4,400 after reaching an intraday high near $4,443.
Tensions in the Middle East intensified after Iran-backed Houthis attacked energy facilities in four southern Saudi cities earlier on Tuesday. The escalation comes after the United States attacked Iranian vessels and Tehran targeted US warships and Oil tankers over the weekend.
Oil prices extend their advance, with West Texas Intermediate (WTI) trading around $91.50 per barrel after reaching $92.48, its highest level since June 8.
The latest hostilities also helped the US Dollar recover some ground after its recent weakness, which was largely driven by a sharp rally in the Japanese Yen (JPY). The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.92 after recovering from 98.72, its lowest level since August 21.
Gold’s near-term outlook remains challenging. The metal is widely viewed as a hedge against inflation and geopolitical tensions, but traders are paying greater attention to how higher Oil prices could affect inflation and interest rates. Gold offers no yield and usually performs better when borrowing costs are low.
The Federal Reserve (Fed) has not raised interest rates so far this year, but policymakers have repeatedly expressed concern about inflation staying above the central bank’s 2% target for too long. Friday’s stronger-than-expected US Nonfarm Payrolls (NFP) report eased worries about the labour market and gives the Fed more room to keep its focus on inflation.
Attention therefore turns to the Fed’s September 15-16 meeting, with the CME FedWatch Tool showing around a 60% probability of a 25-basis-point (bps) rate hike. The decision is likely to hinge on this week’s US inflation data.
The US Producer Price Index (PPI) is due on Thursday, followed by the Consumer Price Index (CPI) on Friday. Hotter readings could strengthen the case for a rate hike, while softer figures could ease expectations for higher borrowing costs and offer some relief to Gold.
Technical analysis: Bears eye $4,350 as right shoulder of H&S pattern forms
On the daily chart, XAU/USD holds above the 50-day and 100-day simple moving averages (SMAs) at around $4,255 and $4,346, respectively, keeping the broader near-term structure supported.
However, a potential Head-and-Shoulders pattern is taking shape, with the right shoulder currently forming. The neckline is located near $4,350 and is reinforced by the 100-day SMA, making this area an important support zone. Momentum is neutral, with the Relative Strength Index (RSI) near 50, while the Average Directional Index (ADX) has eased toward 23, suggesting that directional momentum is losing strength.
A decisive break below the $4,350 neckline would confirm the bearish pattern and expose the 50-day SMA near $4,255, followed by horizontal support around $4,150 and the psychological $4,000 mark.
On the topside, immediate resistance comes from the 200-day SMA near $4,537, with a more significant barrier further up at the horizontal level around $4,700. A sustained move above these layers would be needed to re-open a stronger bullish extension in Gold.
(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.
Rabobank's Senior FX Strategist Jane Foley discusses how United Kingdom (UK) Chancellor Healey’s pro-growth rhetoric and commitment to fiscal rules have left questions over funding, with EUR/GBP still range-bound. Foley highlights the Pound’s vulnerability due to high foreign ownership of gilts and market pricing for Bank of England (BoE) rate hikes, expecting EUR/GBP to drift higher towards 0.87 over three months.
Pound seen vulnerable to policy risks
"While EUR/GBP did reach the lows of the day around the time that Healey wrapped up his presentation, the currency pair has stayed within the range drawn last Friday."
"As we have pointed out before, the gilts market has the potential to be particularly sensitive to negative budget related news because of the relatively high amount of foreign ownership. Overseas buyers can be more reactionary to a souring of the news flow, and in the case of the gilts market this can have a detrimental impact on the pound."
"By contrast, worrisome news on the French budget in recent years has seen sellers move into other Eurozone bond markets leaving little impact on the EUR."
"This positioning may leave the pound vulnerable. A hawkish takeaway from the BoE meeting next week is already priced in, meaning that the pound could slip on anything that can be construed as dovish."
"On the back of this factor, coupled with the pound’s potential sensitivity to fiscal matters, we expect EUR/GBP to be biased higher, towards 0.87 on a 3-month view."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
ING’s Francesco Pesole notes that stronger second-quarter Eurozone growth and resilience to geopolitical and commodity shocks have kept the Euro (EUR) relatively expensive. However, he maintains a short-term downside bias in EUR/USD driven by expectations of a September Fed hike and worsening Eurozone terms of trade, seeing a move towards 1.150 over coming weeks as a realistic scenario ahead of a potentially dovish European Central Bank (ECB) meeting.
Euro resilience but softer path seen
"Second-quarter eurozone growth was revised up from 0.4% to 0.6% QoQ, driven by stronger Irish growth on the back of robust multinational performance."
"More broadly, Europe’s resilience despite geopolitical developments and higher commodity prices remains a key theme of the summer and has likely helped keep the euro relatively expensive."
"Our short-term downside preference in EUR/USD is still mainly driven by our USD view and expectation of a September Fed hike. That said, the latest rise in energy prices adds further support."
"Real-time estimates suggest the eurozone’s commodity terms of trade are now worse than at the previous low in March."
"Ahead of Thursday’s ECB meeting, we see some dovish risks given the market’s aggressive tightening expectations. In that context, a move towards 1.150 over the coming weeks remains realistic in our view."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- GBP/JPY rebounds on Tuesday as the Japanese Yen’s recent rally loses momentum.
- Oversold RSI conditions support the recovery, but the cross stays below the 50-day, 100-day and 200-day SMAs.
- The 210 mark provides immediate resistance, while support is seen at 207.10 and 205.
GBP/JPY rebounds on Tuesday as the Japanese Yen (JPY) loses momentum following its sharp rise since the start of the month. At the time of writing, the cross trades around 208.90 after briefly falling to 207.10, its lowest level since December 2025.
Some profit-taking in the Yen, combined with oversold Relative Strength Index (RSI) conditions in GBP/JPY, appears to be helping the cross rebound on Tuesday. Higher Oil prices also add pressure on the Japanese currency. Japan relies heavily on imported energy, particularly from the Middle East.
The Yen’s recent rally has been driven by expectations that the Bank of Japan (BoJ) will speed up its monetary policy tightening, prompting traders to unwind Yen-funded carry trades and bring capital back to Japan.
Better-than-initially-estimated Japanese Gross Domestic Product (GDP) data released earlier in the day reinforced expectations of a BoJ rate increase but provided little support to the Yen. The central bank is widely expected to raise interest rates at its September 17-18 meeting.
On the UK side, the Bank of England (BoE) is expected to leave interest rates unchanged for a sixth consecutive meeting on September 17. Attention now turns to the BoE Monetary Policy Report hearing later on Tuesday. Governor Andrew Bailey and other Monetary Policy Committee members will testify before lawmakers and traders will look for fresh clues about the interest rate path.
Technical Analysis
On the daily chart, GBP/JPY keeps its bearish near-term bias as it trades below the 50-day, 100-day and 200-day simple moving averages (SMAs). However, the Relative Strength Index (RSI) near 25 indicates oversold conditions and helps explain Tuesday’s corrective rebound. The Moving Average Convergence Divergence (MACD) stays below zero, while the Average Directional Index (ADX) rises toward 28, suggesting the broader downtrend remains strong.
On the upside, the psychological 210 mark acts as immediate resistance. A break above this level could open the door toward the 200-day SMA at 213, followed by the 100-day SMA at 214. Further resistance is seen at 217.50 and 219.50.
On the downside, Tuesday’s low near 207.10 provides immediate support. A break below this level could expose the psychological 205.00 mark. Buyers would need to push GBP/JPY firmly above the 210.00-215.00 region to ease the bearish pressure and support a stronger recovery.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | -0.01% | -0.03% | -0.07% | 0.08% | 0.63% | 0.26% | |
| EUR | -0.09% | -0.10% | -0.07% | -0.11% | -0.02% | 0.54% | 0.17% | |
| GBP | 0.00% | 0.10% | 0.00% | -0.07% | 0.07% | 0.63% | 0.28% | |
| JPY | 0.03% | 0.07% | 0.00% | -0.05% | 0.10% | 0.66% | 0.30% | |
| CAD | 0.07% | 0.11% | 0.07% | 0.05% | 0.14% | 0.70% | 0.35% | |
| AUD | -0.08% | 0.02% | -0.07% | -0.10% | -0.14% | 0.58% | 0.20% | |
| NZD | -0.63% | -0.54% | -0.63% | -0.66% | -0.70% | -0.58% | -0.36% | |
| CHF | -0.26% | -0.17% | -0.28% | -0.30% | -0.35% | -0.20% | 0.36% |
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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
BNY’s Geoff Yu highlights that energy risk dominates markets as Brent crude is expected to trade sustainably above $100, with Saudi facility disruptions and constrained Hormuz shipments tightening supply. Yu notes central banks’ reluctance to tighten into a supply shock, while political pressure over living costs grows. Rising Oil prices are seen reinforcing upside risks to global inflation and weighing on risk appetite.
Middle East shocks tighten supply outlook
"Energy risk continues to dominate. The market is now fully braced for Brent crude to trade above $100/barrel on a sustained basis."
"Saudi Arabia has halted operations at several southern energy facilities after attacks triggered fires and caused injuries, escalating risks to regional oil supply. The strikes follow repeated Houthi attacks on Saudi energy infrastructure, including the 400,000 barrel/day Jazan refinery, which had already been offline since July."
"The disruption comes as shipments through the Strait of Hormuz remain constrained by the U.S.-Iranian conflict, increasing the risk of simultaneous supply losses across key Middle East export routes. Oil prices are consequently moving back toward U$100/barrel."
"The broader backdrop is also deteriorating, with Iran signaling a more aggressive military posture and the Houthis threatening to blockade Saudi oil flows, reinforcing upside risks to energy prices and global inflation."
"Unlike during the spring oil price surge, a stronger policy response is now looking increasingly difficult to avoid, with the Fed likely to lead that adjustment."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD returns above 1.3800 after bouncing from session lows at 1.3775.
- Risk aversion stemming from rising tensions in the Middle East is offsetting the impact of higher Oil prices.
- Risk aversion has provided some support to the USD, but markets remain muted, awaiting Friday's US CPI release.
The Canadian Dollar (CAD) is giving back previous daily gains against the US Dollar (USD) on Tuesday, as the risk-off mood amid escalating tensions in the Middle East offsets the positive impact of higher Crude prices on the commodity-sensitive Loonie. The USD/CAD pair has returned above 1.3800 from session lows at 1.3775, although it holds marginal lows on the daily chart.
Market sentiment remains frail on Tuesday as hopes of a negotiated end to the Middle East conflict move further away. Iranian authorities threatened on Monday with attacks on energy infrastructure across the Gulf, including US Oil and Gas interests, if their country is targeted again, and Qatar authorities have called for efforts to reopen the key Strait of Hormuz to avoid an “industrial catastrophe”.
The stalemate in the US-Iran conflict, which has extended for six months, has pushed Brent Oil prices to two-month highs above $97.00 per barrel, keeping the Canadian Dollar from depreciating further, as Crude Oil is Canada's main export.
CAD underperforms as US payrolls surprise and BoC support fades
On the macroeconomic front, TD Securities' analysts observe that the latest labour market data delivered a clear blow to the Canadian Dollar, amid a “genuine upside surprise in US payrolls and downside surprise in Canada,” according to the experts, “to overwhelm the temporary support from the BoC's hawkish tilt.”
Looking ahead, TD Securities "expect(s) CAD to underperform its peers going forward,” even as trade developments inject headline risk. While “tariff headlines may generate volatility into the September 8 deadline,” TD Securities cautions that “a meaningful breakthrough appears unlikely and the broader USMCA outlook remains largely unchanged,” limiting the scope for a sustained CAD rebound.
Regarding the Greenback, strategists at Brown Brothers Harriman highlight that Brent crude's surge after “Iran-backed Houthi militants reportedly targeted Saudi oil facilities on Monday and Tuesday (...) is weighing on stocks and bonds, while giving USD a modest lift.”
Nonetheless, BBH stresses that “Friday’s US August CPI report remains the main near-term market driver that will decide the Fed’s September 16 rate decision.” In their view, “a hot CPI print would all but seal a September hike and underpin a firmer USD,” whereas “a cooler reading would strengthen the case for a hold and leave USD vulnerable to a dovish Fed repricing.”
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.
- The Indian Rupee retreats against the US Dollar as energy prices rally further.
- The exchange of attacks between the US and Iran on oil tankers has lifted Oil prices.
- Financial market experts hold a hawkish view on the Fed’s monetary policy outlook.
The Indian Rupee (INR) retreats from its two-month high against the US Dollar (USD) on Tuesday. The USD/INR pair recovers to near 94.90 from its two-month low of 94.29 posted last week as the impact of higher Oil prices on the pair seems to be outweighing the lower US Dollar, which has come under pressure amid caution ahead of the United States (US) Consumer Price Index (CPI) scheduled for Friday.
As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 98.80.
In the opening session, the MCX Crude Oil contract expiring on September 21 is up 0.6% to near Rs. 8,818, the highest level since May 22.
Asia ex-Japan FX faces energy headwinds despite softer Dollar backdrop
According to OCBC, the renewed rise in oil prices and higher US Treasury yields “risks an unfavourable backdrop for much of Asia ex-Japan (AXJ) given the region’s dependence on energy imports” and could “restrain the extent of FX appreciation even if the broader USD stays contained.” The bank suggests that, while a softer Dollar tone may offer some relief, the terms-of-trade shock from elevated energy costs is likely to cap gains for many Asia ex-Japan currencies.
Financial markets expect oil prices to rise further amid continued clashes between the US and Iran. Strategists at Societe Generale said in a note that Brent has “crossed a multi-month descending trend line and is gradually advancing toward the July peak around $102.” They argue that “a move above $102 may extend the uptrend toward the next projections around $108/$110 and $117.” Such a scenario would put more strain on the Indian currency.
Oil risk premia build as Hormuz traffic remains fragile
Analysts at Commerzbank warn that the latest geopolitical flare-up has materially heightened supply risks, noting that "the latest escalation increases the risk that the recent improvement in oil flows through Hormuz is reversed." They point out that "observable traffic through the Strait remained sparse over the weekend," even as "some tankers continue to transit with tracking systems switched off or with military support," underscoring how fragile and opaque the current flow dynamics have become.
US CPI data to influence Fed’s interest rate expectations
This week, the major highlight will be the US CPI data for August, which is expected to reshape the Federal Reserve’s (Fed) interest rate expectations.
According to TD Securities, this week’s inflation data should be “subdued enough to keep the Fed on hold,” though they stress that “the PCE translation will be key” in shaping the policy outlook. The bank expects that “the Fed [will] remain on hold over our forecast horizon,” arguing that while “inflation should remain high for the rest of the year, and the labor market has stabilized,” these dynamics give the FOMC scope to “shift focus to its inflation mandate.” TD Securities cautions that, if policymakers do adjust rates, “if the Fed were to move this year, we believe that move is more likely to be a hike than a cut.”
Currently, the CME FedWatch tool shows that the odds of the Fed hiking interest rates at the policy meeting next month are 58.4%.
USD/INR Technical Analysis
USD/INR trades at 94.90 at the time of writing, keeping a bearish near-term tone as it holds below the 20-period Exponential Moving Average (EMA) at 95.14. The pair remains pressured by this nearby dynamic resistance. However, a sharp recovery in the Relative Strength Index (RSI) above 41 suggests strong buying demand on lower levels.
On the topside, the 20-period EMA at 95.14 is the first resistance level that bulls would need to reclaim to ease immediate selling pressure and open the way for a further recovery towards 95.50. On the downside, the two-month low at 94.15 is the key support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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