Forex News

• USD/CAD rises amid hot US CPI and PPI data.
• Persistent inflation pressure reinforces expectations that the Federal Reserve may keep interest rates higher for longer.
• Ongoing Iran-related geopolitical tensions and mixed Canadian housing and manufacturing data keep the Canadian Dollar under pressure.

The USD/CAD pair elevated near the 1.3760 level on Friday and remains supported by persistent inflation concerns and rising US Treasury yields following this week’s hotter-than-expected US inflation data.

The latest US Consumer Price Index (CPI) report showed headline inflation accelerating to 3.8% YoY in April, while Producer Price Index (PPI) data released later in the week surged 1.4% MoM, marking the strongest monthly increase in four years. This data reinforced expectations that the Federal Reserve (Fed) may keep interest rates elevated for longer as inflationary pressures continue to broaden across the economy.

Additional support for the Greenback comes from ongoing geopolitical uncertainty in the Middle East. Markets remain cautious as negotiations involving Iran continue to show little meaningful progress, keeping fears alive that disruptions around the Strait of Hormuz could persist. Meanwhile, elevated Oil prices continue limiting broader downside pressure on the commodity-linked Canadian Dollar (CAD).

On the Canadian side, traders assessed fresh domestic economic data published on Friday. Canadian housing-related indicators rose to 279.3K, higher than the 240K expected, while Manufacturing Sata released at 3% MoM, lower than the 3.5% expected, highlighting mixed momentum across the industrial sector despite some improvement in factory activity earlier in the quarter.

Short-term technical analysis:

On the 4-hour chart, USD/CAD trades at 1.3756, keeping a bullish near-term bias as it holds above the 20-period Simple Moving Average (SMA) at 1.3717 and the 100-period SMA at 1.3659. The pair is testing a nearby horizontal pivot at 1.3756 while the Relative Strength Index (RSI) hovers in overbought territory near 78, hinting that upside momentum remains strong but could be prone to consolidation due to the overbought nature of the RSI.

On the topside, immediate resistance is located at the horizontal barrier around 1.3767, and a sustained break higher would open the way for further gains. On the downside, initial support is seen at 1.3751, followed by 1.3735, with the 20-period SMA at 1.3717 and the 100-period SMA at 1.3659 providing deeper structural demand on pullbacks.

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

• AUD/USD extends its sharp decline on Friday and slides toward the 0.7150 area amid broad US Dollar strength.
• Markets continue to increase bets on a Federal Reserve rate hike following strong US economic data this week.
• Persistent geopolitical tensions and rising US Treasury yields are also supporting demand for the Greenback.

AUD/USD falls sharply on Friday and trades around 0.7155 at the time of writing, down 0.91% on the day, after hitting its lowest level in more than a week. The pair remains under heavy selling pressure for the second consecutive day amid broad-based US Dollar (USD) strength.

The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, climbs toward its highest levels since early April. The move is supported by rising expectations of tighter monetary policy from the Federal Reserve (Fed) after a series of stronger-than-expected economic releases in the United States (US).

The Consumer Price Index (CPI) accelerated to 3.8% YoY in April from 3.3% previously, while the Producer Price Index (PPI) surged 6%. At the same time, Retail Sales increased 0.5% MoM, confirming the resilience of US consumer spending. The US Industrial Production expanded by 0.7% in April, above market expectations for a 0.3% increase. 

According to the CME FedWatch tool, investors are now pricing in nearly a 40% chance of at least one Fed rate hike before the end of the year, compared with less than 15% a week ago. This repricing continues to support US Treasury yields, with the benchmark 10-year yield reaching its highest level in nearly a year.

ING analysts noted that the US Dollar is currently benefiting from “serious short-term momentum,” supported by strong economic data and rising energy prices. The bank believes that a further move in the DXY toward the psychological 100.00 level remains possible unless geopolitical conditions improve.

Persistent tensions surrounding negotiations between the United States and Iran are also fueling risk aversion and supporting demand for safe-haven assets. Concerns linked to the Strait of Hormuz and risks to global energy supply remain in focus for markets.

Against this backdrop, constructive headlines following the meeting between US President Donald Trump and Chinese President Xi Jinping are providing only limited support to the Australian Dollar (AUD), despite the currency’s sensitivity to the Chinese economic outlook.

Meanwhile, the still-hawkish stance of the Reserve Bank of Australia (RBA) is not enough to offset the current strength of the US Dollar, although it could help limit the downside for the Aussie in the near term.

DBS economists Taimur Baig and Radhika Rao expect Japan’s 1Q Gross Domestic Product (GDP) to grow 1.8% QoQ saar, supported by firm exports and AI- and semiconductor-related investment, keeping their 0.5% full-year GDP forecast on track. However, a return to trade deficit on higher Oil prices remains a key drag on the Japanese Yen (JPY), with Bank of Japan (BoJ) seen delaying rate hikes until July.

Growth resilient while BOJ stays cautious

"Preliminary 1Q GDP, as well as April trade and inflation data, are due this week. GDP growth is expected to remain resilient at 1.8% QoQ saar, up from 1.3% in the previous quarter. Exports stayed firm and industrial production picked up in 1Q, supported by the AI supercycle and rising semiconductor exports. Investment also strengthened, driven by continued AI- and semiconductor-related capex."

"Consumption, however, appears to have softened. Retail sales (including spending by foreign visitors) rose in 1Q, but the BOJ’s consumption activity index, which better captures domestic household spending, pointed to a slowdown."

"Given the solid 1Q performance, our full-year GDP forecast of 0.5% remains on track despite headwinds from the Middle East conflict and higher energy prices in 2Q."

"Separately, April trade data are expected to show the trade balance returning to deficit territory as export growth decelerates while imports pick up. The deterioration in the trade balance, as a result of higher oil prices, remains a key drag on the JPY. Unless oil prices retreat meaningfully, the impact of the Japanese government’s FX intervention is likely to remain temporary."

"April inflation data are expected to show CPI holding steady at 1.5% YoY, helped by government energy subsidy measures. With inflation remaining relatively tame, the BOJ is unlikely to be in a hurry to raise rates at the June policy meeting. We continue to expect a 25bp rate hike in July."

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

Commerzbank's Commodity Analyst Barbara Lambrecht reports that focus in London is turning to Platinum group metals as the World Platinum Investment Council prepares updated forecasts. The bank expects WPIC to project a fourth consecutive annual deficit, further eroding above-ground stocks that already cover only four months of demand. Continued medium-term deficits and inventory drawdowns would likely underpin Platinum prices.

WPIC outlook and shrinking inventories

"At the start of the week, the World Platinum Investment Council (WPIC) will present its new forecasts for the platinum market. It is expected to forecast the fourth consecutive supply deficit for this year."

"Even though the supply deficit is likely to be smaller than in previous years due to weaker demand from the automotive industry and for platinum jewelry, above-ground inventories — which have already fallen significantly — are likely to shrink further."

"They now cover only four months of demand. By comparison, four years ago they still covered a year’s worth of consumption."

"Should the WPIC continue to assume that supply cannot keep pace with demand in the medium term and forecast a sustained drawdown of inventories, this is likely to support the price of platinum."

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

TD Securities’ Senior Canada Economist Robert Both expects Canadian Consumer Price Index (CPI) inflation to rise to 3.1% year-on-year in April, driven mainly by higher energy and food prices and base effects from last year’s carbon tax changes. Core measures (CPI-trim/median) are projected near 2.1–2.2%, leaving the Bank of Canada (BoC) focused on underlying inflation rather than the temporary headline overshoot into the June policy decision.

Energy shock lifts headline inflation

"We look for CPI inflation to firm by 0.7pp to 3.1% y/y in April as prices rise by 0.6% m/m, underpinned by another sharp increase for gasoline and other energy products. Base effects from eliminating carbon taxes in April 2025 will also add to the acceleration on a year-ago basis."

"Higher oil/fertilizer prices will also keep upward pressure on food and airfares, but we do not expect broad strength outside of these two components. Core inflation is forecast to edge lower by 0.1pp to 2.1/2.2% for CPI-trim/median as 3m (saar) rates accelerate 0.5pp to 2.1%."

"Our forecast for 3.1% y/y would leave headline CPI tracking well above BoC projections from the April MPR, but we expect the BoC to look through this and remain focused on core inflation heading into the June policy decision."

"With energy prices driving most of the strength in April CPI, core inflation measures should see more modest gains with CPI-trim/median forecast to rise 0.2% m/m (0.23% unrounded) which would see the BoC's preferred measures slow to 2.1% y/y on a large base-effect from 2025."

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

ING's Francesco Pesole notes the US Dollar (USD) is gaining strong short-term momentum as hotter US data reinforce expectations for a Federal Reserve (Fed) hike. With US Dollar Index (DXY) breaking above late April highs and no progress on Gulf tensions, they see risks of further Dollar strength, contingent on incoming headlines from Beijing and developments in Oil and equities.

DXY breaks higher on Fed repricing

"The dollar seems to be gaining some serious short-term momentum. We had speculated yesterday that the Trump-Xi meeting could have yielded some positive headlines (perhaps also on Iran) that would have capped USD and lifted sentiment. It’s been too little so far, and a turn lower in equity futures today alongside another leg higher in oil prices is allowing the dollar to benefit from the latest hawkish data and the resulting repricing higher in Fed hike bets."

"Overall, there is little evidence so far that higher fuel costs are curbing broader consumer spending, supporting a narrative of a resilient US economy rather than an increasingly negative impact on RoW activity from higher energy prices."

"We have suddenly broken above the late April highs in DXY, and it’s still dangerous to call for a peak in the dollar, considering the lack of any progress in the Gulf. Risks are of a move to 100 unless some positive headlines start flowing in."

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

• Gold falls to over one-week lows as rising US Treasury yields and a stronger US Dollar pressure the non-yielding metal.
• Stronger-than-expected US inflation and resilient consumer spending boost expectations that the Fed could raise interest rates by year-end.
• Technically, XAU/USD maintains a bearish near-term bias, with weak momentum indicators pointing to limited buying interest.

Gold (XAU/USD) slides to over one-week lows on Friday, pressured by a stronger US Dollar (USD) and rising Treasury yields as mounting Oil-driven inflation risks strengthen expectations that the Federal Reserve (Fed) could keep interest rates elevated for longer. At the time of writing, XAU/USD is trading around $4,545, down 2.25% on the day.

The hawkish Fed outlook is gaining traction as higher energy prices have clearly slowed disinflation progress, pushing inflation further away from the Fed’s 2% target.

Data released earlier this week showed US headline inflation rose to 3.8% YoY in April from 3.3% in March, marking the highest level since May 2023. The Producer Price Index (PPI) climbed 6% YoY in April from 4.3% previously, recording its strongest increase since December 2023.

Consumer spending remained resilient, with US Retail Sales rising 0.5% MoM in April. The latest batch of US economic data prompted traders to increase bets that the US central bank could raise borrowing costs by year-end.

A higher interest rate environment reduces the appeal of non-yielding assets like Gold because the precious metal does not offer any yield or interest.

According to the CME FedWatch Tool, markets are currently pricing in around a 45% probability of a rate hike at the December meeting, up from around 33% a day earlier.

Against this backdrop, US Treasury yields extended their advance, with the benchmark 10-year Treasury yield climbing to its highest level in one year. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, rose above 99.00, its highest level since April 8.

On the geopolitical front, US-Iran peace talks remain stalled, with no near-term resolution in sight. Iran’s Foreign Minister Abbas Araghchi said on Friday that the US is sending “contradictory messages” on negotiations and added that Iran is prepared for both fighting and diplomatic solutions.

Attention also remains on the outcome of the concluded summit in Beijing between US President Donald Trump and Chinese President Xi Jinping, where both leaders discussed trade, increasing bilateral investment and the ongoing Iran war.

Trump told reporters on Friday that he would be open to Iran suspending its nuclear program for 20 years, but stressed it must be a “real” commitment. He also warned that if no nuclear agreement is reached, the US could resume military action targeting bridges and electrical infrastructure.

Technical Analysis: XAU/USD struggles below 20-day SMA as sellers retain control

On the daily chart, XAU/USD maintains a mildly bearish near-term bias as spot holds below the 20-day Simple Moving Average (SMA) from the Bollinger Bands at roughly $4,662 and well under the upper band resistance near $4,814.

The lower band around $4,510 offers initial dynamic support, but a subdued Relative Strength Index (RSI) at 40.23 and a low Average Directional Index (ADX) near 17 hint at weak, directionless momentum, leaving Gold vulnerable while it trades beneath these overhead levels.

On the downside, immediate support is seen at the lower Bollinger Band around $4,510, ahead of the horizontal floor at $4,350, with a deeper cushion emerging near $4,100 if selling accelerates.

On the topside, a daily close above the mid-Bollinger 20-day SMA at $4,662 would be the first sign of stabilization, with further resistance waiting at the upper band near $4,814 and then at the more strategic horizontal barrier around $5,000.

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

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that USD/CAD is grinding higher into the mid‑1.37s, with the Canadian Dollar (CAD) underperforming but still faring better than many G10 commodity peers. Spot trades well above the bank’s fair value estimate of 1.3554, and the team warns CAD has little defence against further short‑run USD overvaluation as sentiment drives the move.

Resistance gives way as Dollar trend firms

"Grinding dollar gains are extending this morning to reach the mid-1.37s. CAD losses are relatively light, compared with its G10 commodity peers and the core majors. "

"Factors driving the CAD have softened a little over the past few days but dollar gains are primarily sentiment-driven and spot sits significantly above our fair value estimate (1.3554) this morning. The CAD has little defence against USD overvaluation stretching a bit more in the short run."

"Neutral/bullish— USD gains have been chipping away at resistance in the low 1.37 area all week and the sustained push through the low 1.37s has extended quickly to probe 1.3750 and a little above so far today (1.3758 is the 50% retracement of the April/May drop in the USD from 1.3967 to 1.3550)."

"Short-term trend dynamics are soft but trending a little more bullishly for the USD now which puts a push on to 1.3810/20 on the radar. "

"Support is 1.3710/20. "

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

• Industrial Production in the US grew at a stronger pace than expected in April.
• The US Dollar Index clings to daily gains above 99.00.

Industrial Production in the United States (US) expanded by 0.7% on a monthly basis in April, the Federal Reserve (Fed) reported on Friday. This print followed the 0.3% contraction reported in March and came in better than the market expectation for an increase of 0.3%.

"In April, manufacturing output rose 0.6 percent, the index for mining ticked down 0.1 percent, and utilities output moved up 1.9 percent," the Fed noted in its press release. "Capacity utilization moved up to 76.1 percent, a rate that is 3.3 percentage points below its long-run (1972–2025) average."

Market reaction

The US Dollar (USD) preserves its strength in the American session on Friday. At the time of press, the US Dollar Index (DXY) was up 0.35% on the day at 99.20.

Rabobank strategists outline how a disruption in the Strait of Hormuz could affect Oil and refined products. Using a partial model of the global oil supply chain, they argue Europe would mainly see price adjustments in a three‑month closure, but a year‑long disruption would deplete buffers and force significant demand cuts, especially in jet fuel, naphtha and fuel oil.

Hormuz disruption and product bottlenecks

"Using a partial model of the global oil supply chain, we assess risks of bottlenecks in refined products. The model shows required supply‑demand adjustments, not actual inventory forecasts."

"In the event of a disruption in the Strait of Hormuz lasting up to three months (from March), physical shortages of oil products in Europe are unlikely; adjustments are expected to occur primarily through higher prices."

"If the Strait of Hormuz remains closed for around one year, buffers are also depleted in Europe, making substantial demand reduction unavoidable, particularly for jet fuel, naphtha and fuel oil."

"Impacts are uneven, hitting aviation, logistics and air‑freight‑dependent industries most"

"Parts of Asia and Oceania face higher shortage risks due to low stocks, limited refining and Middle East dependence."

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