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United States (US) President Donald Trump reiterated in a Truth Social post on Tuesday, “The Strait of Hormuz is open to ALL ship traffic except for Iran.” He added that the US would impose a “FULL Blockade” only on vessels travelling to or from Iranian ports or carrying Iranian cargo.

Trump claimed that Oil shipments through the strategic waterway were flowing strongly due to the US military presence. “Oil is flowing like never before, thanks to the awesome power of the United States military,” he said.

The President also backed away from his earlier plan to charge a 20% fee on cargo passing through the Strait of Hormuz. “Based on highly productive conversations with Middle East leadership, I have decided to replace the 20% United States reimbursement fee with trade and investment deals that the various Gulf states will be making into the United States,” Trump said.

Trump also repeated that, “Iran will never have a nuclear weapon.”

Market reaction

Oil prices briefly moved lower following Trump’s remarks before recovering. West Texas Intermediate (WTI) trades around $79.00, up nearly 1.50% on the day, after touching an intraday high of $80.61.

While testifying on the Semiannual Monetary Policy Report before the US House Financial Services Committee, Federal Reserve (Fed) Chairman Kevin Warsh reiterated that the Fed is making a commitment on price stability and the goal of 2% inflation.

Key takeaways

"Inflation is a choice."

"Fed won't pass buck."

"Will deliver price stability."

"We have tools to deliver that."

"Will revisit inflation frameworks to understand what causes inflation and what we can do."

"Task forces are in discovery mode, starting with blank sheet of paper."

"Task forces will share views first with 19 policymakers."

"Will be a public discussion, happy to share results and thinking periodically."

"Balance sheet is part of monetary policy."

"Balance sheet is not merely about plumbing."

"Any change in balance sheet policy would be previewed, explained, have advance notice broadly."

"Fed must stay clear of fiscal policy."

"Committed to conducting independent monetary policy."

"Have demonstrated commitment to independence and reform, will deliver on both."

"Don't expect any change in communications to be about hiding the ball."

"Mortgages are higher than they have been in part because inflation is above Fed's target."

"Containing inflation would be consistent with lower long-term treasury yields, more affordable mortgages."

"We are not afraid of productivity-led growth."

"Two parts of Fed mandate are not in conflict."

"Have some work to do on inflation front."

"We do not want to be in the bailout business."

"Want to be in a position we aren't bailing out anyone including crypto."

"No cruel choice between stable prices and full employment."

"Don't have to run a balancing test."

"Over the long term technologies will improve productivity but it can be quite far out."

"Fed can think hard about when we're going to be buying debt from the treasury."

"Want resilient strong safe financial system."

"We'll have deeper, more serious discussions among us, fewer pronouncements."

In his prepared remarks, Warsh noted that the Fed has no tolerance for persistently elevated inflation.

Highlights from Warsh's prepared testimony

"If we get policy right - and we will- the inflation surge of the last five years will be a thing of the past."

"Underlying inflation over longer time horizons is determined largely by monetary policy."

"Household consumption growth is moderate; manufacturing output has moved up steadily this year."

"Housing sector continues to lag."

"Economic activity is expanding at a solid pace, showing resilience in the face of recent developments."

"Don’t know the extent to which the economy will benefit from AI buildout."

"Most striking feature of the economy right now is business investment, which appears to be accelerating and reflects AI projects and spending."

"Equipment overall increased about 8% in Q1; high-tech spending grew at annualized rate of nearly 25%."

"Productivity growth has been strong, predating gains from AI adoption."

"Labor market appears broadly stable."

"Fed is monitoring implications for inflation and labor market."

"Have a duty to take a fresh look at current practices to make sure we are serving our objectives."

"Purpose of task forces is to equip Fed to make better monetary policy decisions, put years of high inflation behind us."

"Job creation has kept pace with workforce; unemployment rate is low and has changed little over the past year; seeing relatively few layoffs; solid growth in nominal wages."

"Balance sheet task force will probe advantages and disadvantages of ample reserves regime and explore alternatives."

Warsh underscores Fed resolve on inflation as activity and AI investment stay solid

Fed Chair Warsh’s testimony scores 7/10 on the FXS Speechtracker, in-line with the 7/10 historical average. This signals a steady, firmly anti-inflation stance rather than an escalation in hawkishness. The assertion that “if we get policy right…the inflation surge of the last five years will be a thing of the past” and the emphasis that underlying inflation is largely determined by monetary policy, alongside “no tolerance for persistently elevated inflation,” reinforce confidence in sustained restrictive policy even as economic activity, business investment tied to AI, and a broadly stable labor market point to solid underlying momentum.

The FXS Fed Sentiment Index remains at 127.19, confirming that the speech leaves the overall policy tone firmly in hawkish territory relative to the historical average. The combination of a stable index reading and a speech score matching the established baseline suggests that markets should view Warsh’s remarks as a continuation of the existing hawkish narrative.

• AUD/USD rises toward 0.7000 as softer US inflation data weighs on the US Dollar.
• US headline CPI fell 0.4% MoM and slowed to 3.5% YoY, while Core CPI eased to 2.6% YoY.
• Fed Chair Kevin Warsh maintained a hawkish tone, while traders now await China’s GDP and Retail Sales data for fresh direction.

AUD/USD trades sharply higher near 0.6990 on Tuesday, approaching the psychological 0.7000 level as the US Dollar (USD) falls following weaker-than-expected United States (US) inflation figures.

The US Consumer Price Index (CPI) declined 0.4% MoM in June, compared with the expected 0.1% decrease and May’s 0.5% increase. Annual inflation slowed sharply to 3.5% from 4.2%, below the market forecast of 3.8%. Core CPI remained unchanged during the month, while the annual underlying rate eased to 2.6% from 2.9%, also undershooting expectations.

US employment indicators showed some moderation as the ADP Employment Change four-week average declined to 19.75K from 21K. The weaker inflation and employment readings overshadowed relatively hawkish comments from Fed Chair Kevin Warsh during his testimony before Congress.

Warsh said policymakers have “no tolerance for persistently elevated inflation” and remain firmly committed to restoring price stability. However, he provided no clear signal regarding the Fed’s next policy move. He also described the labor market as broadly stable, noting that unemployment remains low, layoffs are limited, and nominal wage growth continues to be solid.

Attention now turns to China’s economic releases on Wednesday, which could provide the next catalyst for the Australian Dollar given Australia’s close trade relationship with China. Chinese Gross Domestic Product (GDP) is expected to expand 4.5% YoY in the second quarter, slowing from 5.0% in the first quarter. Quarterly growth is forecast at 0.9%, down from 1.3%. China’s June Retail Sales will also be closely watched.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6992, keeping a bullish near-term bias as it rises well above both the 20-period Simple Moving Average (SMA) at 0.6944 and the 100-period SMA at 0.6926. The pair is pressing against an immediate horizontal resistance at 0.6993, while the Relative Strength Index (RSI) at 66.8 shows firm positive momentum approaching overbought territory, hinting that the advance could be stretched but not yet exhausted.

On the downside, initial support is seen at 0.6970, ahead of a nearby cluster of horizontal levels at 0.6959 and 0.6950 that reinforce the underlying demand zone. Below these, the 20-period SMA at 0.6944 and the 100-period SMA at 0.6926 provide deeper dynamic support. On the topside, a clear break above 0.6993 would open the way for further gains, with the current configuration of rising momentum and stacked moving-average support suggesting dips are likely to be bought while this barrier is challenged.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• USD/CAD falls to its lowest level since June 17 as softer US inflation data weighs on the Greenback.
• Rising Oil prices provide additional support to the commodity-linked Loonie.
• Traders await Wednesday’s Bank of Canada interest rate decision and US PPI data.

The Canadian Dollar (CAD) strengthens sharply against the US Dollar (USD) on Tuesday, drawing support from softer-than-expected US inflation data and rising Oil prices amid escalating tensions in the Middle East.

At the time of writing, USD/CAD trades around 1.4055, its lowest level since June 17, down nearly 0.70% on the day.

The US Dollar came under broad selling pressure after the latest Consumer Price Index (CPI) data showed inflation cooling more than expected. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.75, retreating from an intraday high of 101.32.

US CPI fell 0.4% MoM in June after rising 0.5% in May. Markets had expected a smaller decline of 0.1%. Annual inflation slowed sharply to 3.5% from 4.2%, below the 3.8% forecast.

Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, against expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.

Traders quickly scaled back expectations of an imminent Federal Reserve (Fed) interest rate hike following the data. According to the CME FedWatch Tool, the probability of a July hike fell to 12% from 40% before the CPI release, while the odds of a September increase eased to 59% from 74%.

Canada is a major crude Oil exporter, and higher energy prices generally benefit the Canadian Dollar. West Texas Intermediate (WTI) trades around $78.00, up around 9% so far this week, as renewed hostilities between the US and Iran raise concerns over energy supplies through the Strait of Hormuz.

In a Truth Social post, US President Donald Trump said the Strait of Hormuz would remain open to all shipping except vessels travelling to and from Iranian ports. Trump also dropped the proposed 20% security fee, saying it would be replaced by trade and investment deals between Gulf states and the US.

Attention now turns to the Bank of Canada’s (BoC) monetary policy decision on Wednesday, with the central bank widely expected to leave its policy rate unchanged at 2.25%. In the US, traders await the Producer Price Index (PPI) data for more clues on inflation.

ING’s Warren Patterson and Ewa Manthey report that European natural gas benchmarks are rising as Middle East developments threaten LNG flows from the Persian Gulf. TTF has broken above EUR50/MWh and continues higher, while Europe heads into the injection season with storage at just 52% of capacity, below the five-year average, and cargoes diverted to Asia by a premium in JKM.

TTF breaks above EUR50/MWh

"Developments in the Middle East have also seen European natural gas prices surging. TTF settled almost 5.4% higher yesterday, breaking convincingly through EUR50/MWh."

"The market continues to move higher this morning following the US reimposing a blockade on Iran, generating plenty of uncertainty over LNG flows from the Persian Gulf."

"Europe is looking vulnerable heading through the injection season, with storage just 52% full, well below the 5-year average of 68%. JKM’s continued premium to TTF is prompting LNG cargoes to be redirected to Asia, leaving Europe tighter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Gold rebounds on Tuesday after US CPI data surprises to the downside.
• Renewed US-Iran tensions lift Oil prices and revive concerns over energy-driven inflation.
• Technically, Gold remains under pressure, with the RSI remaining below the neutral level.

Gold (XAU/USD) rebounds sharply on Tuesday, erasing losses recorded on the previous day after softer-than-expected US inflation data eased expectations of a near-term Federal Reserve (Fed) interest rate hike.

At the time of writing, XAU/USD trades around $4,080, up nearly 2% on the day after touching a two-week low of $3,983 earlier in the Asian session.

The Consumer Price Index (CPI) fell 0.4% MoM in June, well below the forecast of a 0.1% decline and down sharply from the 0.5% increase recorded in May. Annual inflation eased to 3.5% from 4.2%, also below the 3.8% forecast.

Core CPI, which excludes volatile food and energy prices, was flat in June, missing expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.

Following the data, the US Dollar (USD) and US Treasury yields came under fresh selling pressure as traders pared Fed rate-hike bets. According to the CME FedWatch Tool, the probability of a July hike fell to 16% from 40%, while the odds of a September rate increase eased to 60% from 74%.

The soft CPI report has provided Gold with some breathing room, but the latest escalation between the US and Iran has shifted attention back to the inflationary impact of rising Oil prices. Higher Oil prices keep the prospect of a Fed rate hike later this year alive, limiting the scope for a stronger recovery in Gold.

During his congressional testimony, Fed Chair Kevin Warsh said on Tuesday that the central bank has the tools to deliver price stability and remains committed to its 2% inflation goal. Warsh added that this is not the time for the Fed to “pass the buck” on inflation.

West Texas Intermediate (WTI) trades around $80.00, up nearly 12% so far this week. The US carried out strikes against Iran for a third consecutive night on Monday. US President Donald Trump also said he was reinstating a naval blockade on Iran, which will take effect at 20:00 GMT on Tuesday. Trump added that other countries could continue using the Strait of Hormuz but would face a 20% security fee.

Technical analysis: XAU/USD attempts to stabilize within a bearish setup

On the daily chart, XAU/USD maintains a bearish bias, trading below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs).

Gold is attempting to stabilize above the $4,000 psychological mark, but momentum remains weak. The Relative Strength Index (RSI) is near 43, while the Moving Average Convergence Divergence (MACD) remains modestly positive, suggesting that selling pressure may be easing but does not yet indicate a clear bullish reversal.

On the upside, initial resistance is at $4,200, followed by the 50-day SMA at $4,332. The 200-day SMA at $4,495 and the 100-day SMA at $4,570 represent stronger barriers and reinforce the broader bearish structure.

Immediate support is located at the round $4,000 mark. A sustained break below this level could trigger renewed selling pressure, while Gold would need to reclaim $4,200 to ease the current bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Societe Generale economists describe China’s June trade surplus of $125.62bn, driven by 27% yoy export growth and 36% import growth, with AI-related high-tech shipments up over 50%. The report compares similar dynamics in Korea and Taiwan, where large tech-driven surpluses are recycled into foreign assets, limiting currency appreciation, domestic demand spillovers and broader inflation despite strong nominal GDP gains.

AI-driven trade and currencies

"China’s trade surplus widened to $125.62bn in June, the second largest on record, as exports expanded 27% yoy and imports rose 36% yoy."

"The trade data reinforces the divergence our economists have highlighted between robust tech-driven external demand and still-subdued domestic consumption."

"The similar AI-driven trade dynamic is playing out in Korea and Taiwan, where surging semiconductor and technology demand are driving the exports boom, corporate profits and nominal GDP growth."

"However, as our economists highlight, the transmission to broader inflation, domestic demand and currency appreciation has been far more muted."

"As a result, much of the AI-driven income gains are retained or invested abroad."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• NZD/USD jumps to a one-month high following softer-than-expected US inflation data.
• The Kiwi outperforms as hawkish RBNZ expectations contrast with fading near-term Fed rate-hike bets.
• Rising Oil prices keep US inflation risks alive despite the cooler June CPI report.

NZD/USD jumps to a one-month high on Tuesday as traders digest the latest US inflation data, which came in softer than expected and reduced expectations of an imminent Federal Reserve (Fed) interest rate hike. At the time of writing, the pair trades around 0.5820, up nearly 1.23% on the day.

The US Consumer Price Index (CPI) fell 0.4% MoM in June, following a 0.5% rise in May. The reading came in below the forecast of a 0.1% decline. Annual inflation eased sharply to 3.5% from 4.2%, below the 3.8% forecast.

Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, missing expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.

The US Dollar came under renewed selling pressure following the data, lifting the Kiwi, which is the best-performing major currency on Tuesday as the Reserve Bank of New Zealand’s (RBNZ) hawkish stance contrasts with easing Fed rate-hike expectations.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.75, retreating from an intraday high of 101.32.

According to the CME FedWatch Tool, the probability of a July hike fell to 12% from 40% before the CPI release, while the odds of a September increase eased to 59% from 74%.

Still, the Fed could raise interest rates later this year as Oil prices move higher once again, reviving inflation risks amid renewed hostilities in the Middle East.

Attention now turns to Fed Chair Kevin Warsh’s congressional testimony, due later in the American session. In prepared remarks, Warsh said the Fed has “no tolerance for persistently elevated inflation” while describing the labor market as broadly stable. He added that if policymakers get policy right, the inflation surge of the past five years will become “a thing of the past.”

The Japanese Yen (JPY) continues to trade in defensive territory, with the USD/JPY pair pinned near a historic 40-year high around 162.00. However, in a striking divergence from rising global yields, Japanese Government Bonds (JGBs) have begun outperforming. 

This sudden resilience is being supported by verbal interventions from Japanese policymakers, who are signaling plans to redirect the country's massive domestic savings pool and pension assets back into home markets. Should these structural reforms materialize, global banks warn that a powerful wave of capital repatriation could reshape the Yen's long-term trajectory.

Policymakers look to unlock Japan's retail savings to anchor JGBs

While global government bond yields have faced upward pressure from rising energy prices, domestic yields in Japan have bucked the trend. Analysts at MUFG point out that JGBs are finding a strong anchor in verbal interventions, with Finance Minister Satsuki Katayama and Health, Labour and Welfare Minister Kenichiro Ueno hinting at upcoming policy shifts. By floating tax-advantaged treatments for individual investors and suggesting a strategic review of public pension holdings, authorities hope to make yen-denominated assets structurally more attractive.

Taken together, the comments from overnight will further encourage speculation that Japan’s huge savings could be better utilized to provide more support for JGBs and the yen.

The power of a potential rebalancing of the government pension investment fund 

Brown Brothers Harriman (BBH) highlights stellar demand at a recent 20-year JGB auction, where yields plummeted by 18 basis points to 3.56% on an exceptional average bid-to-cover ratio of 4.52. This buying surge coincides with proposals to include government bonds in Japan's tax-free retail investment program and to potentially rebalance the massive ¥294 trillion ($1.8 trillion) Government Pension Investment Fund (GPIF).

Currently, the GPIF operates on a strict allocation split equally at 25% across domestic and foreign stocks and bonds. Because Japan commands a colossal $3.6 trillion net foreign asset position – equivalent to roughly 83% of its GDP – even a marginal adjustment of these targets would trigger a massive structural repatriation of capital back into JPY.

Japan is one of the world’s largest net creditor with net foreign assets totaling roughly $3.6 trillion in Q1 or 83% of GDP. As such, even a modest portfolio repatriation could generate meaningful JPY and JGB demand.

What does this mean for the Japanese Yen?

The banks project an upward-biased medium-term trajectory for the Japanese Yen, driven by a potential sea change in domestic investment policy. MUFG highlights that the government's active campaign to encourage local households to invest at home will act as a durable backstop for local assets. BBH notes that while USD/JPY remains elevated in the 162.00s, the sheer scale of Japan's overseas wealth means any tangible follow-through on GPIF portfolio rebalancing or tax incentives will serve as a catalyst to drive a Yen recovery.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Bart Melek at TD Securities argues that money managers are heavily short crude based on what he views as misread market conditions, including pessimism on China demand and expectations of an oil glut. With deficits set to persist and deepen through summer and Brent breaking key resistance, the bank expects positioning to shift as short covering risks grow.

Managed money shorts at extremes

"We have long argued that ongoing inventory erosion later this summer would trigger a short-covering rally."

"That process now appears to be unfolding more rapidly than expected."

"We see $10–15/ bbl of additional upside in the not-too-distant future should the crisis continue to threaten oil supplies and force money managers to cover their short positions."

"Based on what we view as misplaced interpretations of market conditions, including expectations that China will have a cycle of demand destruction, persistently depressed import levels, the belief that seaborne inventories are not falling at a record pace, and forecasts for an "oil glut" in the coming months, money managers are heavily short."

"Short exposure in Brent is at levels not seen since late 2025, when the market was concerned about a three million b/d surplus."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)