Forex News
Standard Chartered analysts Carol Liao and Moriarty Lam argue that China’s reflation remains largely cost-driven, with industrial profit recovery concentrated in AI- and oil-related sectors. They highlight that domestic demand continues to lag supply, creating a persistent imbalance. They expect accommodative policies and a low-inflation, low-yield regime to stay in place as rebalancing takes time.
Reflation led by AI and energy sectors
"While we agree that productivity gains are driving China’s supply capabilities, domestic demand has lagged, creating a persistent supply-demand imbalance."
"However, our analysis suggests that recent reflation has been driven primarily by higher global commodity prices."
"Industrial profit recovery has been concentrated in the AI- and oil-related sectors, while industries most frequently associated with ‘overcapacity’ have seen a limited improvement in profitability."
"The supply-demand imbalance may persist for longer if AI adoption runs ahead of labour market adjustment, placing sustained downward pressure on prices."
"In this environment, accommodative policies and a low-inflation, low-yield regime are likely to remain in place."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities notes July payrolls surprised sharply to the downside, with headline jobs dragged by government hiring, while private employment stayed near breakeven. The firm expects July Retail Sales to post the first decline since January, aligning with softer labor data, though they still see overall economic activity as stable given mixed but expansionary ISM readings and robust Q2 underlying GDP growth.
Labor softness and consumption slowdown
"July payrolls surprised sharply to the downside on Friday, posting -23k job gains with negative revisions subtracting 103k jobs from May and June. The UE rate declined again to 4.1% but for "bad reasons" as the participation edged down again."
"However, we would not extrapolate too much from the jobs report. Private job gains were 30k, with private sector hiring being overall in line with the breakeven rate this year. Government jobs (-53k) drove down the headline, led by local government eduction after recent volatility in the ex education segment. The July report essentially reflects monthly volatility amid longer-term stability."
"The jobs number should not change much for the Fed. Inflation data will remain key amid two consecutive supply shocks. While the jobs report does reduce the urgency for hikes and allays fears of acceleration, the labor market was never the main source of inflationary worries for Fed this cycle. Attention will turn to inflation data this week."
"Retail sales this week will likely show weak spending in July, in line with payrolls. Another key data report showing weakness would support arguments that policy is still restrictive. However, we are not yet ready to downgrade our view of economic activity. The ISMs last week were mixed but still remained expansionary, while Q2 underlying GDP growth was robust."
"Retail Sales: Retail sales likely declined 0.2% m/m in July following an already subdued 0.2% increase in June. The first decline since January will likely be led by negative auto and gas sales. Control group sales were likely flat partly due to normalization after Amazon Prime Day."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Mexican Peso eases as traders book profits after weak NFP shock.
- US CPI and jobless claims could reshape Fed hike expectations.
- Banxico hold bets remain firm as Mexico inflation approaches target.
The Mexican Peso (MXN) loses some ground against the US Dollar (USD) on Monday as traders book profits after a worse-than-expected US jobs report last week and as eyes turn to the release of US inflation figures on Wednesday. At the time of writing, the USD/MXN pair trades at 17.14, modestly up 0.05%.
USD/MXN steadies as traders take profits, with US inflation data, Fed expectations driving the markets
Last week, the Greenback was pressured by intervention in the FX markets by US and Japanese authorities aimed at strengthening the Japanese Yen. However, the move is fading as the US Dollar Index (DXY) posts gains of over 0.20%.
The DXY, which tracks the performance of the buck against six currencies, sits at 99.80, after refreshing two-month lows at 99.40.
July’s Nonfarm Payrolls were worse than expected, with the economy slashing jobs, but the Unemployment Rate ticked lower from 4.2% to 4.1%. Although this is just one reading, traders would also watch the release of Initial Jobless Claims on Thursday for possible cracks in the labor market.
Aside from this, the highlight of the week is the release of US inflation figures on the consumer and producer side. If prices align with estimates, this would indicate a resumption of the disinflation process, barring any rate hikes by the Federal Reserve.
Across the southern border, Mexico´s inflation edged towards the Bank of Mexico (Banxico) goal of 3% plus or minus 1%, as revealed by the National Statistics Agency (INEGI). This is a relief for Banxico, which unanimously held rates unchanged on August 6, though it hinted that the balance of risks to inflation was tilted to the upside.
According to the Citi Mexico expectations survey, all the analysts expect Banxico’s main policy interest rate to remain unchanged at 6.50% towards the end of the year. At the same time, the median estimate is that the USD/MXN exchange rate would end this year at 17.90.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.1441, maintaining a bearish near-term bias as spot holds below the clustered simple moving averages around 17.40 and the descending resistance trend line projected from the 18.16 area near 17.44. The pair is trading under these key overlays, suggesting rallies remain capped, while the Relative Strength Index (14) near 33 points to weak but not yet oversold downside momentum that could allow further softening before a more meaningful bounce.
On the topside, initial resistance is seen at the grouped simple moving averages around 17.40, followed by the descending trend-line barrier near 17.44, where sellers are likely to re-emerge if the pair attempts a corrective rebound. On the downside, structural support is aligned with the longer-term trend-line break level near 15.66, leaving the intermediate space largely uncharted and implying that any renewed selling pressure could accelerate should intraday bounces fail to regain the 17.40–17.44 cap.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN 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.
- WTI jumps more than 6% on Monday, wiping out last week’s losses.
- Uncertainty over the reopening of the Strait of Hormuz keeps supply concerns elevated.
- Iran says shipping-lane talks with Oman are in their final stages, but broader US-Iran diplomacy remains stalled.
West Texas Intermediate (WTI) jumps more than 6% on Monday, erasing last week’s losses as uncertainty over when the Strait of Hormuz will reopen keeps supply concerns and the geopolitical risk premium firmly in place. At the time of writing, WTI trades around $81.15 per barrel, near a one-week high.
Oil prices fell last week on reports that Iran and Oman were nearing an agreement to temporarily restore shipping through the waterway. However, the decline proved short-lived as no final announcement followed. Details of the proposed agreement released on Thursday also pointed to Tehran seeking greater control over shipping routes, with vessels potentially required to pay transit fees.
In the latest development, Iranian Foreign Minister Abbas Araghchi says talks with Oman on defining new shipping lanes through the Strait are in their “final stages.” Tehran, however, has stressed that an agreement on shipping routes alone would not reopen the waterway.
Iran is demanding that the United States (US) lift its naval blockade, while Reuters reports that Tehran is also seeking sanctions relief, compensation for war damage and security guarantees before agreeing to a lasting arrangement.
In a Truth Social post on Friday, US President Donald Trump pushed back against Tehran’s demand and said Washington would instead seek compensation for people killed or wounded in attacks and conflicts he blamed on Iran.
Meanwhile, US-Iran diplomacy appears to be at a stalemate, with Tehran denying direct talks with Washington. Iranian media reports suggest Tehran could wait until President Trump leaves office on January 20, 2029, before returning to the negotiating table.
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.
In a major setback to efforts to reopen the Strait of Hormuz and cool Middle East tensions, Iran ruled out any future negotiations with United States (US) President Donald Trump, according to Iranian outlets and a X post by an adviser to Parliament Speaker Mohammad Bagher Ghalibaf. Headlines note that Tehran will wait until the US President’s term ends on January 20, 2029, to resume talks.
"Trump will not reach an agreement with us. We will accompany him until his term ends," Majid Shakeri, adviser to Ghalibaf, said
Oil risk premium underpinned as Hormuz deal stays out of reach
According to TD Securities, a prospective agreement on the Strait of Hormuz remains out of reach, with the bank noting that a "Hormuz deal remains elusive." Strategists highlight that the risk backdrop is being reinforced as "the Houthis' continued strikes on Saudi energy infrastructure, flows via Hormuz and Bab el-Mandeb remain critically choked, and Russian exports and refining remain subdued amid continued Ukrainian attacks," all of which continue to underpin the geopolitical risk premium in Oil.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | -0.12% | 0.84% | 0.01% | 0.15% | 0.20% | 0.25% | |
| EUR | -0.12% | -0.24% | 0.72% | -0.10% | 0.03% | 0.08% | 0.13% | |
| GBP | 0.12% | 0.24% | 0.97% | 0.13% | 0.29% | 0.32% | 0.37% | |
| JPY | -0.84% | -0.72% | -0.97% | -0.84% | -0.71% | -0.70% | -0.60% | |
| CAD | -0.01% | 0.10% | -0.13% | 0.84% | 0.08% | 0.20% | 0.22% | |
| AUD | -0.15% | -0.03% | -0.29% | 0.71% | -0.08% | 0.03% | 0.10% | |
| NZD | -0.20% | -0.08% | -0.32% | 0.70% | -0.20% | -0.03% | 0.06% | |
| CHF | -0.25% | -0.13% | -0.37% | 0.60% | -0.22% | -0.10% | -0.06% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
BNY’s Geoff Yu and David Tam argue that a more dovish Federal Reserve (Fed) and weaker United States (US) labor data have improved conditions for Latin American (LatAm) carry trades, but broken correlations with commodities and lingering inflation risks limit momentum. They see FX as the first beneficiary of easier financial conditions, while stressing that sustained performance requires domestic reforms and better productivity to enhance real returns.
Carry appeal tied to reforms and FX
"The dovish Fed and weaker U.S. labor market on Friday have created the necessary conditions for carry to perform, but idiosyncratic risk matters."
"With most Latin American central banks looking to hold or cut rates, traditional yield-driven flows will struggle."
"However, the correlation shift suggests the market is seeing improved commodity prices as a positive driver, and a window exists for Latin American carry FX to perform."
"Much will depend on using this window of looser financial conditions to accelerate domestic reform, improve productivity to boost real returns."
"FX is the first mover, but validation will come in duration."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
United States (US) President Donald Trump used a post on his Truth Social platform to push back on Iran's demands for war reparations, arguing that Tehran, not Washington, should carry the bill for the damage and lives lost across the region.
Key takeaways
Trump said Iran should be "responsible for the damages and death" caused to the people of Lebanon, Syria, Yemen and Gaza.
The remark is a direct answer to Iran's own call for compensation, with each side now demanding the other pay.
It comes with the Strait of Hormuz still shut and US-Iran talks effectively stalled, while Oman and Iran work on a power-sharing agreement for the Strait, leaving the US and Iranian positions further apart rather than closer.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.13% | -0.11% | 0.84% | 0.03% | 0.17% | 0.22% | 0.27% | |
| EUR | -0.13% | -0.24% | 0.72% | -0.10% | 0.03% | 0.08% | 0.16% | |
| GBP | 0.11% | 0.24% | 0.97% | 0.13% | 0.30% | 0.32% | 0.39% | |
| JPY | -0.84% | -0.72% | -0.97% | -0.84% | -0.70% | -0.68% | -0.58% | |
| CAD | -0.03% | 0.10% | -0.13% | 0.84% | 0.09% | 0.22% | 0.24% | |
| AUD | -0.17% | -0.03% | -0.30% | 0.70% | -0.09% | 0.03% | 0.11% | |
| NZD | -0.22% | -0.08% | -0.32% | 0.68% | -0.22% | -0.03% | 0.07% | |
| CHF | -0.27% | -0.16% | -0.39% | 0.58% | -0.24% | -0.11% | -0.07% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
- Gold gains as Hormuz reopening delay keeps geopolitical risks elevated.
- US CPI and PPI data could reshape Fed tightening bets.
- Rising Oil prices cap bullion upside despite softer labor data.
Gold (XAU/USD) price edges up at the beginning of the week as the reopening of the Strait of Hormuz faces delays due to demands from Iran to the US, and is capped by the modest strength of the Greenback, with traders eyeing the release of crucial US inflation data. At the time of writing, the XAU/USD pair trades at $4,352, up 0.50%, after bouncing off daily lows of $4,316.
XAU/USD holds above $4,350 as investors weigh Oil-driven inflation risks, Fed bets and upcoming US data
The US Dollar Index (DXY), which measures the performance of the buck against a basket of peers, is up 0.14% at 99.75 as market participants continue to digest the US and Japanese interventions in the FX markets.
Last week, a softer-than-expected Nonfarm Payrolls report showed that the jobs market remains in a low-hiring, low-firing mode, as said by Richmond Fed President Thomas Barkin. The US economy slashed 23K jobs, missing forecasts for an 80K increase, and the May and June numbers were revised downward. Although the data sparked a trimming of Fed hawkish bets, it's just one reading, and now eyes turn to the release of US inflation figures.
July’s Consumer Price Index (CPI) is expected to ease from 3.5% to 3.4% YoY. Core CPI, which excludes volatile items, is projected to tick lower from 2.6% to 2.5% YoY. A day after this, on Thursday, the Producer Price Index is also projected to ease.
On the same day, Initial Jobless Claims for the week ending August 8 are expected to rise from 199K to 201K. Due to the weaker-than-expected NFP, claims will be closely watched by investors, who are also looking for signs of weakness in the labor market that could prevent the Fed from cutting interest rates, even though inflation remains stubbornly high.
So far, money markets have priced in 22 basis points of tightening by the Federal Reserve towards the end of 2026, up from 17 basis points expected last Friday, according to Prime Terminal data.
Aside from this, geopolitics continued to move the needle, including the exacerbated rally in Oil prices, a headwind for the yellow metal. West Texas Intermediate (WTI), the US crude benchmark, is up nearly 6% to $81.54 per barrel as talks for a reopening of Hormuz continue, but progress has slowed after Iran said the US should agree to Tehran’s demands.
Iran’s demands are that there should be an end to hostilities, a halt to military actions, withdrawal of US forces, compensation for war damages, lifting of sanctions and release of frozen assets. If met, the reopening of the Strait of Hormuz could be faster.
XAU/USD price forecast: Gold faces 100-day SMA as bulls target $4,500
Gold price advance continued, but as of writing, it remains below the 100-day Simple Moving Average (SMA) at $4,389, seen as crucial for buyers if they would like to conquer higher prices.
Momentum is bullish, as indicated by the Relative Strength Index (RSI), which confirms further upside. Hence, the path of least resistance is tilted to the upside. If XAU/USD clears the 100-day SMA, this clears the path to challenge the $4,400 psychological level. Above lies the 200-day SMA at $4,498, followed by the $4,500 milestone.
On the downside, initial support is at the July 6 high, now at $4,202. If this level fails, the next support levels are the 50-day SMA at $4,150 and $4,100.
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.
- USD/JPY advances 0.7% on Monday and trades near 158.95.
- Japan’s current account unexpectedly posts a ¥92.3B deficit in June.
- Expectations of further monetary tightening in Japan provide some support to the Japanese currency.
USD/JPY advances 0.73% on Monday and trades around 158.95 at the time of writing. The Japanese Yen (JPY) underperforms against the US Dollar (USD), pressured by Japan’s unexpected current account deficit, although expectations of further interest rate hikes from the Bank of Japan (BoJ) could limit the currency’s weakness.
Data released on Monday by Japan’s Ministry of Finance (MoF) showed that the Current Account posted a deficit of ¥92.3B in June, while markets had expected a surplus of ¥1,512B.
The Ministry attributed the deterioration partly to higher Oil prices and significant dividend payments to foreign investors. The June shortfall, the first deficit recorded in 17 months, is therefore adding to selling pressure on the Japanese Yen at the start of the week.
Japan’s fiscal situation is also acting as a headwind for the currency. Public debt exceeds 200% of Gross Domestic Product (GDP), while Prime Minister Sanae Takaichi’s expansionary policies and proposed tax cuts are fueling concerns over long-term debt sustainability.
These concerns are helping to limit the lasting impact of interventions aimed at supporting the Japanese Yen. Japan intervened on three occasions between late April and early May before returning to the market with two additional operations in late July, including a coordinated intervention with the United States (US).
Japanese monetary policy, however, provides some counterweight to these pressures. The Summary of Opinions from the Bank of Japan’s (BoJ) July meeting showed that most policymakers retain a tightening bias. One member even argued that policy normalization may need to proceed faster than markets currently expect amid upside risks to prices.
On the US side, investors have nevertheless scaled back expectations of restrictive monetary policy from the Federal Reserve (Fed) following Friday’s weak employment data. This shift could limit the USD/JPY advance despite the Japanese Yen’s current weakness.
Attention now turns to the US Consumer Price Index (CPI) data for July, due on Wednesday. The inflation figures should provide fresh clues about the Fed’s interest rate path and could determine whether USD/JPY can extend its rebound above 159.00.
Japan rate debate shifts as BoJ weighs inflation overshoot risks
Analysts at BNY note that “long-end JGB pressure is building,” with “inflation risks and fiscal concerns” pushing long-dated yields “toward the upper end of recent ranges.” They add that markets are now “pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end,” underscoring a gradual but clear repricing of the policy path.
According to BNY, the latest BoJ discussions show that “several members argued that the bank should keep the policy rate unchanged at this meeting to assess the lagged impact of the previous hike, but the overall tone favors further tightening.” In their view, “the debate has shifted away from lifting inflation to 2% and onto preventing an overshoot,” with some members warning that “waiting too long could force faster, larger rate hikes later, risking a ‘double shock.’”
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.10% | -0.18% | 0.76% | -0.09% | 0.09% | 0.17% | 0.19% | |
| EUR | -0.10% | -0.27% | 0.64% | -0.20% | -0.02% | 0.06% | 0.09% | |
| GBP | 0.18% | 0.27% | 0.95% | 0.09% | 0.29% | 0.34% | 0.37% | |
| JPY | -0.76% | -0.64% | -0.95% | -0.86% | -0.70% | -0.65% | -0.57% | |
| CAD | 0.09% | 0.20% | -0.09% | 0.86% | 0.11% | 0.27% | 0.25% | |
| AUD | -0.09% | 0.02% | -0.29% | 0.70% | -0.11% | 0.07% | 0.10% | |
| NZD | -0.17% | -0.06% | -0.34% | 0.65% | -0.27% | -0.07% | 0.04% | |
| CHF | -0.19% | -0.09% | -0.37% | 0.57% | -0.25% | -0.10% | -0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
- USD/CAD trades just above 1.3900, the lowest in two months.
- Crude Oil is roughly 3% higher near $81, with Brent above $86.
- July's policy report assumed 71 cents, spot trades near 72.
The Canadian Dollar trades at its strongest against the US Dollar since the second week of June, with the rate holding just above 1.3900 into the afternoon. This is a fourth consecutive lower session and the seventh in ten, and Monday's entire 35-pip range sits inside Friday's, pinned to its floor. Two months of US Dollar gains have gone in ten trading days.
Two months, and the war took them back
The last time this rate traded here was 43 sessions ago, in the week the Strait of Hormuz shut. The whole advance the US Dollar built against the Loonie across the war has now been surrendered, and it has been surrendered while the war escalates rather than resolves, which is the opposite of the condition that was supposed to hand it back.
What changed is the mechanism rather than the news. In June a shut Strait bought the US Dollar as a safe-haven, with a central bank on the other side of the trade whose inflation problem the shock made worse. In August the same headline buys the Loonie instead, because a barrel 3% higher is a terms-of-trade payment to a net exporter, and the first phase of any escalation in this rate has always been a Canadian bid with 1.4000 pressed.
The 71-cent assumption breaks the other way
July's Monetary Policy Report conditioned its inflation path on the Loonie averaging around 71 cents US over the projection horizon, which is a rate near 1.4085. Spot is 71.8 cents, close to a full cent stronger than the assumption and the widest that gap has run since the forecast was finalised on July 10.
The report's own arithmetic then runs both ways through a single price. Its sensitivity endnote has Brent holding between $80 and $85 in the coming months adding a tenth to three tenths of a point to inflation, and Brent trades above $86. The same barrel that lifts the inflation path bids the currency that lowers it, which leaves a central bank with a December 9 increase already fully priced and nothing domestic on the calendar to argue with.
Canada is not in the room
Nothing on the Canadian docket this week will confirm or deny any of it. The move was built entirely on the other side of the border, first by Friday's payrolls contraction and then by Monday's Crude Oil bid, against a domestic economy in technical recession, with unemployment at 6.5% and a 50% tariff on most of its goods entering the United States since July 20.
The rate channel argues the other way, which is what makes the session worth reading. Futures repriced a September increase from the Federal Reserve to 49.9% from 44.1% on Friday, and the US Dollar lost ground regardless. A currency that ignores a hawkish repricing on the other side of the trade is not being bought on the rate gap, and the barrel is the only other thing that moved.
The barrel that pays Canada is not the one quoted on the screen. Alberta's heavy grade traded at a discount of close to $19 beneath the American benchmark in May, the widest of the war, and the June and July averages on that table are still pending. Until they print, a 3% move in the headline barrel is an estimate of the transfer rather than a measurement of it.
The data week
July's Consumer Price Index (CPI) lands on Wednesday at 12:30 GMT, forecast at 0.1% MoM against a 0.4% decline in June, with the annual rate easing to 3.4% from 3.5% and core at 0.2% MoM and 2.5% YoY. That is the only release this week either side of this rate genuinely trades.
Thursday carries the Producer Price Index (PPI) at 0.2% MoM against a 0.3% decline, core at 4.2% YoY from 4.7%, and jobless claims at 201K, with two regional Federal Reserve presidents speaking either side of the release. Friday brings retail sales at 0.2% and a Michigan sentiment reading seen falling to 54 from 55.2. The Canadian side offers nothing at all, which leaves the September 2 decision as the next domestic event carrying a rate.
Levels and bias
Resistance: Just above 1.3950 capped Monday and is the first line. The 1.4000 handle and the 50-day Exponential Moving Average (EMA) sitting a fraction above it now form one band, and reclaiming it is the minimum requirement for anything bullish, with the late-July peak just above 1.4100 beyond that.
Support: The 200-day EMA near 1.3900 is the first structure beneath the market and has not been tested since May. Below it the tape thins toward 1.3850, and there is no meaningful mark on this window until the May base near 1.3550.
Bias: Bearish while the 1.4000 band caps, with the 200-day EMA near 1.3900 as the first objective and 1.3850 behind it. A daily Stochastic Relative Strength Index (Stoch RSI) near 30 is not yet oversold, leaving room for a fourth consecutive lower session to become a sixth. A daily close back above 1.4050 invalidates and reopens the late-July peak.
USD/CAD daily chart
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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