Forex News
ING analysts Warren Patterson and Ewa Manthey note that Oil remains supported as tensions between the US and Iran escalate in the Persian Gulf. They highlight continued flows through the Strait of Hormuz, aided by US Navy escorts, and unchanged OPEC+ quotas. Speculative net longs in ICE Brent have risen, while disruptions mean many producers stay below quota.
Persian Gulf tensions underpin crude
"The oil market remains well-supported with little sign of a peace between the US and Iran. The US struck several Iranian-linked tankers in response to Iran targeting US warships. Iran says it has also taken action against tankers navigating unauthorised routes, and now plans to enforce a new restricted zone outside the Strait of Hormuz — a move that could put additional vessels in the Gulf of Oman at risk."
"Despite the escalation, oil continues to flow. The US energy secretary said oil moving through the Strait of Hormuz is averaging a little more than 9m b/d, made possible by US Navy escorts."
"OPEC+ kept its output quotas unchanged for October, which comes as no surprise. The group announced increases this year, which fully unwind voluntary cuts of 1.65m b/d. However, given ongoing disruptions in the Persian Gulf, most members will produce well below their quota."
"Given the recent flare-up between Iran and the US, it's not surprising that speculators increased their net long in ICE Brent over the last reporting week. Speculators bought 37,837 lots to leave them with a net long of 261,435 lots as of last Tuesday. While fresh buying and short covering were relatively sizeable, most of the increase came from short covering."
"While oil price action has been more modest with the latest developments in the Middle East, European gas prices have seen more upside. The TTF was trading almost 4% up in early morning trading today. Unfortunately, LNG has not been flowing out as much as crude oil, leaving the gas market increasingly vulnerable as we near the 2026/27 heating season."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Danske Research Team reports EUR/USD trading in a narrow 1.1610–1.1620 range after quickly reversing losses from a stronger US jobs report. They highlight a thin data calendar with United States (US) markets closed, and note that attention will shift to the upcoming European Central Bank (ECB) meeting, where a rate hike is widely expected, and to US Consumer Price Index (CPI) figures later in the week.
Pair steadies in tight trading band
"In the euro area, retail sales fell by 0.6% m/m in July (cons: 0.2%), following a small increase in June. Fuel sales weighed on the headline figure, but sales excluding fuel also declined by 0.6% m/m, returning to levels seen in Q1."
"The positive growth recorded in July PMIs therefore does not appear to have been driven by private consumption. As consumers remain cautious, companies may find it harder to pass on higher energy costs, which could help explain why these pressures have not spilled over into core inflation."
"In Germany, AfD's victory in Saxony-Anhalt was broadly in line with expectations, winning 44% but falling short of an outright majority. The result confirms AfD's momentum, though mainstream parties rule out a coalition and the direct federal impact is limited."
"EUR/USD is relatively stable in a 1.1610-1.1620 range, as it quickly reversed the initial decline seen after the stronger US jobs report on Friday. "
"The data calendar is thin today as the US market is closed due to Labor Day. Later this week, focus turns to the ECB meeting on Thursday, where a hike is widely expected, and the US CPI figures on Friday."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- NZD/USD weakens to around 0.5875 in Monday’s early European session.
- The pair retains a consolidative near-term tone, with neutral RSI momentum.
- The first upside barrier emerges at 0.5910; the initial support level to watch is 0.5845.
The NZD/USD pair trades in negative territory near 0.5875 during the early European trading hours on Monday, pressured by a firmer US Dollar (USD). Traders raise their bets on a US Federal Reserve (Fed) rate hike in the September policy meeting following stronger-than-expected US jobs data.
The US Bureau of Labor Statistics (BLS) showed on Friday that US Nonfarm Payrolls (NFP) climbed by 162K in August, versus an upwardly revised rise of 21K prior. This figure came in above the market consensus of 56K. Meanwhile, the Unemployment Rate held steady at 4.1% during the same period. Fed funds futures are now pricing in roughly a 60% probability of a hike, according to the CME FedWatch tool.
A dovish hike from the Reserve Bank of New Zealand (RBNZ) could undermine the New Zealand Dollar (NZD). The RBNZ decided to raise the Official Cash Rate (OCR) by 25 basis points (bps) to 2.75% last week. RBNZ Governor Anna Breman stated that it’s likely there will be a further increase, but policymakers want to take time to assess the impact of the increases to date.
RBNZ continues gradual tightening as inflation risks monitored
Analysts at Commerzbank note that the RBNZ delivered a widely anticipated move, with the central bank raising the Overnight Cash Rate (OCR) by 25bp to 2.75% “as expected,” and reiterating that “a gradual removal of monetary stimulus was appropriate to return inflation sustainably to the target.” The bank highlights that while headline CPI remains elevated, largely on the back of Middle East-related fuel costs, most core inflation measures are still within the RBNZ’s 1–3% band, suggesting that the pace of any further tightening will hinge on the “persistence” of inflation pressures and the strength of the domestic recovery.
Technical Analysis: NZD/USD extends consolidation the near term
In the daily chart, NZD/USD sits between nearby structural bands, holding above the 100-day moving average (MA) while still trading below the Bollinger middle band. This configuration, together with a 14-day Relative Strength Index (RSI) hovering around a neutral 48, suggests a consolidative near-term tone, with price caught in a range rather than showing a clear directional break.
On the topside, initial resistance is seen at the Bollinger middle band around 0.5910. The next upside target is located at the Bollinger upper band further up near 0.5985.
On the downside, the 100-day MA at about 0.5845 offers the first layer of support, ahead of the Bollinger lower band clustered just below 0.5830, which would need to give way to signal a deeper corrective move. A break below this level could expose the July 27 low of 0.5771.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Germany’s Industrial Production declined 1.1% Month-on-Month (MoM) in July, the latest data published by Destatis showed on Monday. This figure came in below the market consensus of a 0.3% growth and slower than the previous reading of 0% (revised from 0.2%).
Industrial sector activity, in the Eurozone’s economic powerhouse, fell by 1.6% Year-on-Year (YoY) in July, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, after declining 0.5% in June.
Market reaction
A mild selling pressure is seen in the Euro (EUR) following the German Industrial Production data release. At press time, EUR/USD edges down to near 1.1610.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- USD/JPY flattens at around 156.00 at the start of the week.
- The JPY outperformed last week after hawkish remarks from BoJ’s Takata.
- Investors keenly await the US CPI data for August.
The Japanese Yen (JPY) trades flat against the US Dollar (USD) at around 156.00 at the start of the week, but is close to its four-month low of 155.23. The pair is broadly firm due to JPY’s last week's outperformance, which came on the back of hawkish commentary from Bank of Japan’s (BoJ) board member Hajime Takata.
Yen surge raises questions over BoJ intervention and rate path
Analysts at MUFG highlight that there were “significant moves in the FX market, with the Japanese yen in particular strengthening sharply from the 160 level on 2 Sep all the way down to as low as 155.30 overnight, a 5 big figure move.” They note that it came more broadly on the policy backdrop, flagging that “BoJ Board Member Takata – one of BOJ’s most hawkish members – gave a speech earlier this week leaving the door open for an outsized interest rate increase as well as back-to-back hikes,” reinforcing market speculation that the BoJ could countenance a more aggressive tightening path if conditions warrant.
MUFG also flagged a weak US Dollar as another trigger for significant weakness in the US Dollar, and ruled out the possibility of BoJ’s intervention. “It is not entirely clear whether the moves in USD/JPY were driven by FX intervention,” although “BoJ current account data for Wednesday do not suggest the moves were driven by intervention,” pointing instead to broader Dollar weakness and regional FX gains as key drivers, MUFG said.
Meanwhile, investors await the United States (US) Consumer Price Index (CPI) data for August, which will be published on Friday. The US inflation data is expected to have a significant impact on the Federal Reserve’s (Fed) interest rate expectations.
USD/JPY Technical Analysis
In the daily chart, USD/JPY trades at 155.95, keeping a bearish near-term bias as spot holds well below the 100-day Simple Moving Average (SMA) at 159.92. The distance to this SMA suggests the broader uptrend framework remains above price, with sellers in control for now.
The Relative Strength Index (RSI) at about 32 hovers just above oversold territory, hinting that downside momentum is stretched but not yet signaling a confirmed reversal.
On the topside, the 100-day SMA at 159.92 is the first meaningful resistance that bulls would need to reclaim to ease the current downside pressure and reopen a path toward higher levels. Looking down, the four-month low at 155.25 is the key support zone; below that, the pair could face a fresh downside leg.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- South Korea's KOSPI jumped over 4% past 6,950, driven by chipmakers like Samsung Electronics and SK Hynix.
- Japan's Nikkei 225 climbed 1.85% above 66,200 as tech shares gained despite Bank of Japan rate hike fears.
- Chinese markets split as the Shanghai Composite fell 0.24% while the Shenzhen Component jumped over 2%.
Asian stocks were mixed with a positive bias on Monday, driven by optimism that a new OpenAI model will spur demand for memory chips. This momentum followed Friday's rally among US semiconductor and memory stocks as broader sentiment toward the sector improved.
South Korea’s benchmark KOSPI climbed over 4% to top 6,950, surging for a third consecutive day with gains in Samsung Electronics, SK Hynix, SK Square, and Hyundai Motor. The rally was backed by robust economic fundamentals, as South Korea’s exports reached a record $709.4 billion year-to-date, surpassing its 2025 total, led by a 169.6% jump in semiconductor exports from January to August.
Japan’s Nikkei 225 jumped 1.85% above 66,200, while the Topix rose 0.48% past 4,100, extending gains for a second day behind tech heavyweights like Kioxia Holdings and SoftBank Group. However, sentiment remains cautious as traders price in a potential September rate hike by the Bank of Japan to combat sticky inflation and currency weakness.
Chinese markets presented a split picture as the Shanghai Composite dipped 0.24% toward 3,920, while the Shenzhen Component jumped over 2% above 13,800. To bolster credit growth and shore up balance sheets, China announced a CNY 300 billion ($45 billion) injection into its largest financial institutions, marking its biggest sector recapitalization in nearly two decades. Meanwhile, Hong Kong’s Hang Seng Index fell roughly 1% to near 25,400, dragged down by financial, technology, and energy shares.
However, broader markets remained cautious after strong US jobs data reinforced expectations of a Federal Reserve rate hike this month. August Nonfarm Payrolls rose by 162,000, significantly outperforming the 56,000 forecast. Meanwhile, the unemployment rate held steady at 4.1%, and annual wage growth slowed less than anticipated to 3.1%. Following these figures, traders rapidly priced in tighter monetary policy, with the CME FedWatch tool indicating a 58.3% probability of a 25-basis-point Fed rate increase in September.
Traders also adopt caution as rising crude oil prices have stoked fears of rekindled inflationary pressures following a geopolitical escalation between the US and Iran over the weekend. The conflict intensified after the US targeted three Iranian tankers in response to missile attacks on its warships, leading Tehran to establish a new restricted zone around the Strait of Hormuz.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
- Gold trades with a negative bias for the second straight day, though the downside remains limited.
- The upbeat US NFP report boosts Fed hike bets, underpinning the USD and weighing on the bullion.
- Geopolitical risks further benefit the safe-haven USD as the focus now shifts to US inflation figures.
Gold (XAU/USD) sticks to its negative bias for the second straight day on Monday, though it manages to hold above the $4,400 mark through the Asian session. Moreover, the commodity holds above Friday's swing low, touched in reaction to the upbeat US monthly employment details, warranting some caution for bearish traders before positioning for any further losses.
The popularly known US Nonfarm Payrolls (NFP) report showed that the economy added 162K new jobs in August, surpassing consensus estimates for a reading of 56K by a wide margin. Other details revealed that the Unemployment Rate was unchanged at 4.1%, as expected, while annual wage inflation, as measured by the change in average hourly earnings, fell to 3.1% from 3.2%. This comes on top of inflation risks stemming from higher energy prices and lifted bets on an interest rate hike by the US Federal Reserve (Fed) later this month. The hawkish outlook, in turn, is seen acting as a tailwind for the US Dollar (USD) and undermining the non-yielding Gold.
US labor backdrop seen as solid and improving
According to TD Securities, the latest data reinforces the view that the US labor market remains resilient. They argue that, when the official figures are assessed alongside a “private-sector that is looking up from a jobs perspective,” it “suggests that the labor market is in a good place, and possibly getting better.”
Meanwhile, Fed Governor Christopher Waller said last Thursday that he was inclined to argue in favor of keeping rates steady if upcoming data confirmed inflation pressures were cooling. This holds back USD bulls from placing aggressive bets ahead of the latest US inflation figures, due later this week, which are seen as acting as a tailwind for the precious metal. The US Producer Price Index (PPI) and the US Consumer Price Index (CPI) will be published on Thursday and Friday, respectively, and will be looked at for more cues about the Fed's future policy path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the Gold price.
In the meantime, the widening US-Iran confrontation in the Strait of Hormuz keeps the geopolitical risk premium in play and underpins the safe-haven buck. US forces struck three Iranian oil tankers on Saturday, while Iran's Islamic Revolutionary Guard Corps said it had targeted six vessels in retaliation. The tit-for-tat attacks have added to concerns over the security of shipping through the strategic waterway and intensified fears of a prolonged disruption to supplies from the Middle East, supporting oil prices and fueling inflation fears. This favors USD bulls, warranting caution before placing fresh bullish bets on the Gold price and positioning for any meaningful upside.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair sits comfortably above the 200-day Exponential Moving Average (EMA) at around $4,318 and the key 50% retracement of the July-August upswing, at roughly $4,324. This positioning suggests the broader uptrend remains intact, even as momentum indicators have cooled. In fact, the Moving Average Convergence Divergence (MACD) has slipped into negative territory, while the Relative Strength Index (RSI) hovers near 51, hinting at a consolidative phase rather than outright exhaustion of the bullish structure.
On the topside, immediate resistance emerges at the 38.2% Fibonacci retracement near $4,411, with a break above this pivot exposing the 23.6% retracement around $4,519 ahead of the recent cycle high region near $4,693. On the downside, initial support is seen at the 50% retracement at $4,324, closely backed by the 200-day EMA near $4,318. A deeper pullback would look toward the 61.8% level at about $4,237 and the 78.6% retracement near $4,113, where buyers would be expected to reassert the broader bullish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
- The Indian Rupee opens on a positive note against the US Dollar.
- Market experts warn INR’s rally due to strong FCNR(B) deposits could be capped.
- Investors shift their focus to the US CPI data for August.
The Indian Rupee (INR) opens higher against the US Dollar (USD) at the start of the week. The USD/INR pair drops to near 94.38 as the significant increase in forex reserves due to overwhelming response by Non-Residents to Reserve Bank of India’s (RBI) special foreign deposits window has strengthened the Indian currency.
INR outperformance underpinned by RBI Dollar inflows and reduced left-tail risks
Analysts at MUFG highlight that the Indian Rupee has been a notable outperformer, pointing to “strong outperformance in the Indian Rupee, driven by much higher-than-expected Dollar inflows from RBI’s FCNR(B) FX measures, reaching above US$130bn in total as of 31 Aug.”
The bank advised that investors should not be gung-ho about the Indian currency, as it still thinks USD/INR should trend higher over time. But it ruled out the possibility of a sharp INR depreciation, clarifying that RBI’s FX measures have given authorities meaningful firepower and ammunition.
Higher oil prices could weigh on INR
Rising oil prices due to restricted energy supply through the Strait of Hormuz on the back of US-Iran conflicts could dent the rally in the Indian Rupee.
The continued exchange of attacks between the US and Iran regarding the control of Hormuz is keeping oil prices higher.
On Sunday, the Iranian government said that it targeted three oil tankers using an unauthorized route through the Strait of Hormuz, as well as a number of US-linked ships, in retaliation for US attacks on Iranian tankers over the weekend.
In the opening session on Monday, the MCX Crude Oil contract expiring on September 21 is up 1.75% to near Rs. 8,730, closer to its over three-month high of Rs. 8,791.
US Inflation data in focus
This week, the major event for global markets is expected to be the US Consumer Price Index (CPI) data for August, which will be published on Friday.
Investors will closely track the data as Fed Chairman Kevin Warsh has warned of upside inflation risks several times and has stated that the central bank is committed to bringing price pressures down.
However, recent comments from board members: New York Fed Bank President John Williams and Governor Christopher Waller have signaled that recent data on inflation has been “encouraging”.
Meanwhile, traders are expected to reassess the Fed’s interest rate expectations due to stronger-than-expected Nonfarm Payrolls data for August released on Friday. The data showed that employers hired 162K fresh workers, significantly higher than 56K estimate. July’s NFP data was also revised higher to 21K from -23K.
Currently, the CME FedWatch tool shows a 58% chance that the Fed will hike interest rates at the policy meeting next week.
USD/INR Technical Analysis
In the daily chart, USD/INR trades at 94.49. The pair maintains a bearish near-term bias as price holds below the 20-day Exponential Moving Average (EMA) at 95.15.
The shift in the Relative Strength Index (14) range from the 40.00-60.00 zone to below 40.00 suggests downside momentum remains dominant but also warns that selling pressure could be stretched.
On the downside, the June low at 94.15 will be the key support level for the USD/INR pair. On the topside, the 20-day EMA at 95.15 stands as the first meaningful resistance that the pair would need to reclaim to ease the current bearish tone and open the door to a corrective rebound.
(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.
- WTI attracts fresh buyers on Monday as US-Iran tensions keep the geopolitical risk premium in play.
- Confrontations in the Strait of Hormuz fuel supply concerns and also lend support to the commodity.
- The technical setup favors bullish traders and backs the case for a further near-term appreciation.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – kicks off the new week on a positive note amid escalating US-Iran confrontations in the Strait of Hormuz and climbs back above mid-$90.00s during the Asian session. The commodity is now trading within striking distance of its highest level since July 24, touched last Thursday, and seems poised to appreciate further.
In the latest developments surrounding the Middle East crisis, US forces struck three Iranian oil tankers on Saturday, while Iran's Islamic Revolutionary Guard Corps said it had targeted six vessels in retaliation. The tit-for-tat attacks have added to concerns over the security of shipping through the strategic waterway and intensified fears of a prolonged disruption to supplies from the region. This, in turn, validates the near-term positive outlook for crude oil prices.
From a technical perspective, WTI maintains a bullish bias above the 100-day Simple Moving Average (SMA) at roughly $85.21 and the 50% Fibonacci retracement of the April-July decline. Moreover, momentum indicators align with this upward stance, with the Relative Strength Index (14) hovering near 64 and the Moving Average Convergence Divergence (MACD) histogram expanding in positive territory, suggesting buyers retain control in the near term.
On the topside, immediate resistance emerges at the 61.8% Fibo. retracement near $91.73, with further barriers seen at the 78.6% level around $98.48 and then the recent swing high zone near $107.07. On the downside, initial support is reinforced by the 50% retracement at $86.99 and the 100-day SMA, ahead of a deeper Fibonacci floor near $82.26. As long as oil prices hold above this support band, pullbacks are likely to be viewed as corrective within the prevailing uptrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
WTI daily chart
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.
- USD/CAD flatlines around 1.3835 in Monday’s early European session.
- Stronger-than-expected US August NFP boosts the chance the Fed will hike rates this month.
- Canada lost 41,700 jobs in August; Unemployment Rate held steady.
The USD/CAD pair trades on a flat note near 1.3835 during the early European session on Monday. The pair steadies as stronger-than-expected US jobs data offsets rising crude oil prices. US markets will be closed on Monday for Labour Day.
The US Nonfarm Payrolls (NFP) added 162,000 jobs in August, beating expectations, while the Unemployment Rate held steady during the same period, the US Bureau of Labor Statistics (BLS) showed on Friday.
Market expectations for a Federal Reserve (Fed) rate hike at the September policy meeting have surged dramatically following the US jobs data. Fed funds futures are now pricing in roughly a 60% probability of a hike, according to the CME FedWatch tool.
On the other hand, Canada's economy lost 41,700 jobs in August, Statistics Canada revealed. Meanwhile, the Unemployment Rate in Canada remained unchanged at 6.4%.
"The sharp 41,700 fall in employment in August and further slowdown in wage growth pushes back against the idea that the economy has decisively turned a corner," said Thomas Ryan, senior North American economist at Capital Economics.
Escalating geopolitical risk in the Middle East could boost crude oil prices and support the commodity-linked Canadian Dollar (CAD). Iran said that it had struck three oil tankers and multiple US-linked ships in the Strait of Hormuz in retaliation for US attacks on its vessels.
Canadian Dollar steadies as markets await US jobs data
Analysts at Scotiabank highlight that the immediate direction for the Canadian Dollar will hinge on the upcoming US labour market release, noting that “the US jobs numbers will largely dictate price action around the 8.30ET release.” They add that, “assuming data are broadly in line with expectations, the CAD may nudge a little firmer,” suggesting scope for a modest Canadian Dollar bid if the figures do not deliver a significant surprise.
Technical Analysis: USD/CAD remains bearish below the 100-day SMA
In the daily chart, USD/CAD keeps a mild bearish near-term bias as it holds under the 20-day Bollinger simple moving average and the upper band. Price action has retreated from recent highs toward the lower half of the recent volatility envelope, while the Relative Strength Index (14) around 43 stays below the neutral 50 line, suggesting sellers retain the upper hand despite only moderate downside momentum.
On the topside, initial resistance emerges at the 20-day Bollinger middle band around 1.3860, with the upper band near 1.3950 acting as the next cap if buyers attempt a recovery. On the downside, support is seen at the 100-day moving average near 1.3925 only in a broader context but, closer to current trading, the lower Bollinger band around 1.3760 represents the key floor; a daily close below that zone would open the door to a deeper pullback within the broader range.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
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