Forex News
National Bank of Canada's (NBC) Matthieu Arseneau and Alexandra Ducharme note that Canadian headline inflation rose to 3.2% in May, above the Bank of Canada’s (BoC) target range, driven mainly by higher gasoline and food prices. However, core measures remain close to 2%, wage growth has softened, and the authors argue that these conditions justify the BoC maintaining a patient stance on interest rates rather than reacting to the temporary oil shock.
Headline overshoot, core still subdued
"Despite the fact that inflation came in higher than expected in May, we are not overly concerned about the inflation situation in Canada."
"Since inflation in Canada was already well under control before the recent oil shock, we have argued that the Bank of Canada should look through the rise in energy prices and leave interest rates unchanged for now."
"In this context, we believe that the risk of second-round effects, such as wage-driven inflation stemming from higher energy prices, remains limited, especially since some relief is already expected as early as June with the de-escalation in the Middle East."
"In our view, interest rates do not appear accommodative in an environment characterized by geopolitical uncertainty and ongoing trade tensions with Washington."
"Overall, current conditions continue to support a patient approach from the Bank of Canada."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
TD Securities, led by Oscar Munoz and Eli Nir, reports that the Federal Reserve (Fed) has shifted hawkishly and is expected to keep policy rates on hold through 2026 and 2027. The Federal Open Market Committee's (FOMC) latest projections highlight elevated inflation risks, with nine participants penciling in 2026 hikes. Despite slightly dovish rhetoric from Chair Warsh, the analysts see a higher bar for cuts and a greater likelihood of future hikes.
Hawkish shift and extended pause
"Overall, Warsh did sound slightly dovish in his characterization of the stance of policy — but the bar has been raised for rate cuts, and we no longer expect any move in the policy rate in 2026 and 2027. The FOMC is squarely focused on inflation, and labor market stabilization amid two supply shocks limits the need for policy accommodation. If the Fed were to eventually move, it would now more likely be a hike than a cut."
"We revised our Fed call and no longer look for rate cuts in 2027. We now expect the Fed to stay on hold over our forecast horizon."
"Policy guidance skewed significantly hawkish. Nine participants penciled in hikes for 2026, and the SEP underscored that the clear and present danger for the Fed's dual mandate is rising inflation risks. The post-meeting statement was dramatically reduced to a bare-bones description of the Committee's policy action — with an emphasis on inflation currently being away from target."
"We expect the Fed to remain on hold over our forecast horizon. Inflation will remain high for the rest of the year, and the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate. If the Fed were to move this year, we now believe that move is more likely to be a hike than a cut."
"There were two clear takeaways from the FOMC last week: the Fed is shifting hawkishly and formal forward guidance is over."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Deutsche Bank’s Shreyas Gopal notes that markets had largely anticipated Andy Burnham becoming UK Prime Minister by the Autumn Budget, leaving the risk premium in Sterling broadly unchanged. The next key driver for the Pound is who becomes Chancellor, with Wes Streeting viewed as relatively market-friendly versus Ed Miliband. Deutsche Bank highlights that UK fiscal challenges and potential tax debates will likely resurface later this summer regardless of leadership changes.
Sterling risk premium and UK politics
"What are the implications for the pound? Our updated chart on the risk premium in sterling shows little change over the course of the past two weeks. Indeed, we would argue that for the past few weeks, markets have already been trading under the assumption that Andy Burnham would be Prime Minister in time for the Autumn Budget, as now appears to be all but confirmed."
"The next focus for the markets will likely be on who becomes the next Chancellor. Former Health Secretary Wes Streeting’s decision not to contest for the leadership has coincided with his implied probability of replacing Rachel Reeves increasing this morning. Broadly speaking, we believe he would be seen as amongst the more market-friendly candidates."
"By contrast, at the time of writing, prediction markets assign a c. 20% chance to former Labour Leader Ed Miliband. He is generally considered the most left-wing of the potential candidates."
"To be sure, the underlying fundamentals and macro questions for the UK outlook remain the same. To that end, it is likely that headlines around the size of the UK’s fiscal hole, its fiscal rules, and potential need for tax rises return later this summer, independent of who is in Number 10 and Number 11 Downing Street. However, we would not fully dismiss the importance of the signalling to the market in the decision."
"In bond space, our rates colleagues note that gilts have not seen the same degree of flattening as peers over the week, with risk premium in bond space still in place. As such, while our measures show there’s less bad news priced directly in the currency, for now the risk-reward remains skewed towards a grind firmer in the pound vs select, other risk-sensitive currencies. We stay long GBP/NZD."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold rises as signs of progress in US-Iran talks support market sentiment.
- Higher US Treasury yields and a firm US Dollar limit gains in XAU/USD.
- XAU/USD retains a bearish near-term bias while trading below its 200-day SMA.
Gold (XAU/USD) edges higher on Monday as traders react to signs of progress in US-Iran negotiations following the first round of direct talks held earlier in the day in Switzerland, with Pakistan and Qatar acting as mediators.
At the time of writing, XAU/USD is trading around $4,205, up nearly 1.25% on the day.
US Vice President JD Vance said negotiators had laid "a very good foundation for a successful final deal" and added that the Strait of Hormuz is open.
Earlier, Qatar and Pakistan said in a joint statement that Washington and Tehran had agreed on a roadmap to reach a final deal within 60 days. The two sides also agreed to continue technical-level talks for the remainder of the week.
However, traders seem hesitant to chase XAU/USD higher as they await additional clarity from upcoming negotiations. Meanwhile, hawkish expectations from the Federal Reserve (Fed) remain a headwind for the precious metal.
Easing tensions in the Middle East have pushed Oil prices back toward pre-war levels, easing concerns over a prolonged energy-driven inflation shock. However, the recent surge in energy costs has already fueled inflation in the United States, prompting Fed officials to adopt a more hawkish stance at last week's monetary policy meeting.
Traders are pricing in a 73% chance of a rate hike in September, according to the CME FedWatch Tool. Expectations that US interest rates will remain higher for longer are keeping the US Dollar (USD) supported near recent highs and pushing US Treasury yields higher.
The yield on the policy-sensitive US 2-year Treasury note climbed to 4.23% on Monday, its highest level since February 2025.
The near-term outlook for Gold remains tilted to the downside, with any recovery attempts likely to attract fresh selling interest. The US Personal Consumption Expenditures (PCE) inflation report due later this week will be closely watched, with any surprise in the data likely to influence interest rate expectations and, in turn, Gold prices.
Technical analysis: 200-day SMA remains a key hurdle for bulls
XAU/USD maintains a bearish near-term bias as it holds below the 200-day Simple Moving Average (SMA) at roughly $4,469. The Relative Strength Index (RSI) on the daily chart is around 40, keeping momentum in weak territory, while the Moving Average Convergence Divergence (MACD) remains slightly negative, hinting that any rebounds are likely to face selling pressure into overhead averages.
On the topside, initial resistance is aligned with the 200-day SMA at about $4,469, with a stronger cap emerging at the 100-day SMA near $4,714 if buyers attempt a deeper recovery. On the downside, the next notable support comes in around the horizontal line at $4,000, where a break would expose further weakness and reinforce the prevailing bearish structure.
(The technical analysis of this story was written with the help of an AI tool.)
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.
Royal Bank of Canada (RBC) economist Abbey Xu notes that Canadian inflation rose to 3.2% year-over-year in May, mainly due to higher energy prices, airfares and food costs. She highlights that core inflation measures remain close to the Bank of Canada’s (BoC) 2% target, with Consumer Price Index (CPI) excluding food and energy at 1.6%, indicating subdued underlying price pressures.
Energy-led rise in headline inflation
"Canadian inflation accelerated to 3.2% year-over-year in May from 2.8% in April, slightly higher than our pre-release expectation and driven largely by higher energy prices."
"Measures of core inflation remained close to the Bank of Canada's 2% target in May, while CPI excluding food and energy ticked slightly higher to 1.6% year-over-year, suggesting price growth outside the most volatile categories remained subdued."
"The Bank of Canada has repeatedly highlighted the risk that higher oil prices could eventually feed through to a broader range of goods and services prices."
"Inflation pressures continue to be concentrated in a relatively small number of categories, while broader measures of price growth remained contained."
"Overall, the May report suggests headline inflation remains heavily influenced by energy prices while underlying inflation trends continue to move broadly in line with the Bank of Canada's inflation target."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- USD/CAD holds near fourteen-month highs as markets shrug off strong Canadian inflation data.
- Hawkish Fed expectations contrast with the Bank of Canada's steady policy stance.
- Traders turn their attention to BoC Governor Tiff Macklem's speech and US PCE inflation data.
USD/CAD trades little changed on Monday after a brief bout of weakness following stronger-than-expected Canadian inflation data. At the time of writing, the pair is trading around 1.4165, hovering near its highest level since April 2025.
Higher gasoline prices continued to drive the acceleration in headline inflation in May, with annual Consumer Price Index (CPI) inflation rising to 3.2% from 2.8% in April, Statistics Canada reported.
However, the Canadian Dollar (CAD) failed to gain traction as markets focused on stable core inflation rather than the hot headline print. The Bank of Canada's (BoC) core CPI rose to 2.2% YoY in May from 2.1%.
The data suggests the BoC is likely to maintain its current policy settings and keep interest rates on hold. This contrasts sharply with the Federal Reserve (Fed), where markets have increasingly priced in the possibility of a rate hike by year-end following last week's monetary policy meeting. In his first meeting as Fed Chair, Kevin Warsh emphasized the central bank's commitment to restoring price stability.
The Fed's hawkish stance is keeping the US Dollar (USD) supported even as risk sentiment improves amid progress in US-Iran negotiations. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 101, near its highest level in thirteen months.
Meanwhile, the decline in Oil prices due to US-Iran optimism is adding further pressure on the commodity-linked Loonie. With diverging monetary policy outlooks, a strong US Dollar and softer Oil prices, the Canadian Dollar remains vulnerable to further losses.
Looking ahead, the Canadian economic calendar remains empty for the rest of the week, with BoC Governor Tiff Macklem scheduled to speak on Tuesday. In the United States, attention will turn to the Personal Consumption Expenditures (PCE) Price Index later this week, which could provide fresh clues on the Fed's monetary policy path.
Canadian Dollar Price Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.36% | -0.04% | 0.36% | 0.09% | 0.09% | 0.26% | 0.29% | |
| EUR | -0.36% | -0.40% | 0.02% | -0.28% | -0.24% | -0.08% | -0.07% | |
| GBP | 0.04% | 0.40% | 0.41% | 0.14% | 0.16% | 0.32% | 0.35% | |
| JPY | -0.36% | -0.02% | -0.41% | -0.27% | -0.26% | -0.11% | -0.05% | |
| CAD | -0.09% | 0.28% | -0.14% | 0.27% | -0.01% | 0.15% | 0.23% | |
| AUD | -0.09% | 0.24% | -0.16% | 0.26% | 0.00% | 0.18% | 0.19% | |
| NZD | -0.26% | 0.08% | -0.32% | 0.11% | -0.15% | -0.18% | 0.05% | |
| CHF | -0.29% | 0.07% | -0.35% | 0.05% | -0.23% | -0.19% | -0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
TD Securities’ Ryan McKay and Bart Melek highlight that crude Oil and petroleum product flows from the Middle East have rebounded sharply, but this surge is seen as temporary as trapped Gulf barrels clear. Despite higher exports and some production recovery, they estimate a sizeable crude plus product deficit and expect a tighter market through summer, arguing this underpins a strong setup for higher Oil prices even as CTAs have been marginal sellers.
Summer tightness underpins bullish setup
"Energy flows pick up. Despite what appeared to be a shaky first few days of negotiation with plenty of talk of Hormuz being re-shut, we have seen crude oil and petroleum product flows average roughly 7m b/d last week, while starting this week at near 9m b/d."
"However, this kind of elevated flow is only expected to last a couple of weeks as the crude and product that have been trapped on water in the Gulf continue to exit. Elsewhere, our high frequency estimates of Middle East production have topped 17m b/d in recent days (approx 11m b/d shut in), suggesting a recovery of 2-3m b/d in July could be possible at current pace."
"Even with the currently elevated flows, our rolling crude plus product deficit sits at near 3.5-4m b/d, and is likely to deepen as the readily available floating supplies run out, alongside a likely slowing of SPR release into July."
"CTAs have been marginal sellers across the energy complex, but managed money shorts in brent crude have hit extreme levels."
"As the market ultimately remains tight throughout the summer, the set-up for higher oil prices remains very strong."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
European Central Bank (ECB) President Christine Lagarde said on Monday that policymakers are not yet seeing signs that the latest inflation shock requires a more aggressive policy response, even as geopolitical tensions add fresh uncertainty to the Eurozone outlook. Speaking before a European Parliament committee hearing on June 22, Lagarde said there was “no evidence yet of de-anchoring or second-round effects” that would justify a more forceful monetary policy stance.
Key takeaways:
No evidence yet of de-anchoring or second-round effects warranting more forceful policy action.
The ECB remains confident that, with appropriate monetary policy action, inflation will return to target.
The Iran war is weighing on activity, while data points to a slowdown, especially in services.
The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth.
The current inflation shock appears to be smaller in magnitude than the previous one.”
Lagarde downplays inflation risks, leaving Euro bulls cautious
The FXS Speech Tracker score of 4.6/10, below Lagarde’s historic 6/10 average, signals a mildly dovish tilt as the speech stresses no evidence of de-anchoring or second-round effects that would justify more forceful tightening. Emphasis on the fact that current inflation shocks are smaller than in the previous episode, and confidence that inflation will return to target with “appropriate” policy action, point to a preference for a gradual, data-dependent stance rather than aggressive hikes. This makes it a modest negative for the Euro.
At the same time, Lagarde highlights the war in Iran weighing on activity, a slowdown in services, and an outlook marked by upside risks to inflation and downside risks to growth, underscoring a potentially stagflationary backdrop. This mix of softer growth and still-uncertain inflation keeps the ECB in a cautious wait-and-see mode, limiting immediate Euro upside while preventing a fully dovish re-pricing as markets weigh the risk of renewed price pressure.
Societe Generale’s Kit Juckes notes that UK political change is generating only modest Sterling (GBP) weakness, with EUR/GBP seen one to two percentage points higher and GBP/USD likely to test 1.30 this summer. He argues that Sterling remains vulnerable due to inflation and the balance of payments, but stresses that US Dollar direction after the latest FOMC meeting and upcoming Personal Consumption Expenditures (PCE) Price Index data will dominate FX trends.
Summer test of 1.30 on Dollar drivers
"The UK is heading for its seventh Prime Minister since the Brexit vote 10 years ago. The FX market is not overreacting so far, and only modest sterling weakness is likely from here, taking EUR/GBP one or two percentage points higher, while GBP/USD is likely to test 1.30 this summer."
"The pound is weaker than it was before Brexit, but "cheapness" is slowly being eroded by inflation. That, together with the balance of payments, leaves the currency vulnerable, but it is the direction of the US dollar that will be the main driver of FX trends in the coming weeks and months."
"Last week's FOMC meeting has changed the mood, and US economic data will determine FX trends for now. This week, that means second-tier real economy data and the PCE deflators."
"Our economics team expects May's core PCE deflator to rise by 0.4% m/m and 3.5% y/y, which would probably send the dollar higher."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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