Forex News
Societe Generale strategists analyze the Hungarian Forint (HUF) after the central bank of Hungary, Magyar Nemzeti Bank (MNB) cut its policy rate to 5.75% and signalled more easing. They expect a 5.0% terminal rate by year-end, noting EUR/HUF already bottomed near 348.59. With inflation below target and a resilient Forint, they still see EUR/HUF ending 2026 around 355, while highlighting risks from Oil and Hungary’s 2027 budget.
Forint outlook after MNB easing
"In CEEMEA, the MNB yesterday lowered the policy rate by 25bp to 5.75% as expected and signalled scope for further easing ahead. A reassessment of the policy level and macro outlook is scheduled in September."
"With inflation comfortably below target and the forint resilient, we see scope for a decline to 5.0% terminal rate by year-end."
"That said, the question for HUF bulls is have we already seen the best of forint rally in 1H with EUR/HUF bottoming out 348.59 in mid-June."
"While much of the optimism of Euro-friendly government is priced in by the forint assets the rate cuts too are fully priced and EUR/HUF could still end the year around 355 but for that risks are in the form of elevated oil and the 2027 budget by Peter Magyar’s government due in October."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/IDR gains as the Indonesian Rupiah weakens after BI kept its benchmark rate steady at 5.75%.
- BI’s KLM program injected 431.9 trillion Rupiah, boosting June loan growth to 12.67% year-over-year.
- Markets are currently pricing in over 69% odds of a 25 basis-point Fed rate hike this September, per CME FedWatch.
USD/IDR has recovered its daily losses, trading around 17,950 during the European hours on Wednesday. The pair appreciates as the Indonesian Rupiah (IDR) struggles after the Bank Indonesia (BI) decided to hold its benchmark rate steady at 5.75% in July. The hold came as a surprise to many market participants, who had widely anticipated a 25-basis-point rate hike to help stabilize the Rupiah.
Bank Indonesia’s KLM program has injected 431.9 trillion Rupiah in additional liquidity into the financial system as of early July, helping propel June loan growth to +12.67% year-over-year. Full-year 2026 lending growth remains firmly on track to meet the projected 8%–12% target range, underpinned by a banking sector that continues to demonstrate strong resilience against global economic headwinds.
The upside of the USD/IDR pair could be restrained as the US Dollar (USD) struggles despite growing risk aversion tied to escalating geopolitical tensions between the United States and Iran.
However, the Greenback may regain its ground as CME FedWatch Tool indicates that markets are currently pricing in over 69% odds of at least a 25 basis-point rate hike at the upcoming September meeting. However, the Fed is widely expected to leave the federal funds rate unchanged. Despite this anticipated pause, expectations for tighter policy remain elevated beyond July.
Economic Indicator
Bank Indonesia Rate
Interest Rate Decision is announced by the Bank Indonesia. Monitary policy refers to the actions undertaken by a country's monetary authority, central bank or government to achieve certain national economic goals. It is based on the relationship between interest rates at which money can be borrowed and total supply of money.
Read more.Last release: Wed Jul 22, 2026 07:30
Frequency: Irregular
Actual: 5.75%
Consensus: 6%
Previous: 5.75%
Source: Bank Indonesia
According to a Bloomberg report, the Bank of Japan (BoJ) is widely seen holding interest rates steady at the July meeting. The report also shows that the recent weakness in the Japanese Yen (JPY) poses an upside risk to Japan’s inflation, which allows the central bank to fasten its monetary tightening cycle.
Market reaction
A sharp appreciation is seen in the Japanese Yen (JPY) following the report release. USDJPY fell sharply to near 162.65.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- Gold attracts strong follow-through buying amid hopes for US-Iran diplomacy.
- Rallying oil prices fuel inflation concerns and bolster bets for a Fed rate hike.
- Escalating tensions in the Middle East favor USD bulls, capping the bullion.
Gold (XAU/USD) retreats slightly from a two-week high touched earlier this Wednesday, albeit it retains an intraday bullish bias through the first half of the European session. Hopes that US-Iran diplomacy could ease energy prices and temper hawkish US Federal Reserve (Fed) expectations undermine the US Dollar (USD), which, in turn, is seen supporting the commodity. In fact, top negotiators for Iran and the US signaled that they have not walked away from talks. US Secretary of State Marco Rubio said on Sunday that the US was still open to holding talks with Iran, while Iran's Interior Minister Eskandar Momeni asked Pakistan to continue its efforts. This, in turn, prompts some USD profit-taking following the strong move up over the past week or so.
Meanwhile, the US military said it completed the 11th night of strikes on Iran early Wednesday, targeting aircraft hangars and drone storage sites. Adding to this, President Donald Trump warned that the US strikes would be intensifying and hit any site where Iran attempts to rebuild its nuclear program. Iran, on the other hand, continued attacks across the Gulf, targeting US military assets in Bahrain, Kuwait and Jordan. Adding to this, Iran said that its forces struck two oil tankers as they attempted to transit through the Strait of Hormuz. Furthermore, Yemen's Iran-aligned Houthis opened a new front in the war and declared a naval blockade against Saudi Arabia.
The latest developments raise the risk of a broader regional conflict and could compound the shortfall in global energy markets amid the closure of the Strait of Hormuz. This, in turn, lifts crude oil prices to a fresh high since June 12 and fuels worries about energy-driven inflation, which could force the US central bank to stick to its hawkish stance. The CME Group's FedWatch Tool indicates that traders are currently pricing in around an 88% chance that the Fed will raise borrowing costs at least once by the end of this year. The outlook, in turn, favors US Dollar (USD) bulls and warrants some caution before positioning for any further appreciating move for the non-yielding Gold.
Gold recovery seen constrained as Fed and real yields remain in focus
Analysts at OCBC suggest that, in the current environment, gold is likely to see “two-way” trading in the near term, with any rebound facing clear headwinds. They argue that “a more sustained recovery likely requires oil prices to back off, some easing in real yields and Fed tightening expectations,” and caution that “until then, upside may remain capped.”
XAU/USD 4-hour chart
Gold struggles to find acceptance above 200-SMA on H4
From a technical perspective, an intraday breakout through the 38.2% Fibonacci retracement level of the downfall since mid-June and acceptance above the $4,100 mark favor XAU/USD bulls. Furthermore, momentum indicators remain strong as the Relative Strength Index (14) hovers near overbought territory around 69.9, and the Moving Average Convergence Divergence (MACD) stays positive with the line well above zero. This, in turn, hints that upside pressure is still in play even if stretched.
That said, a sustained move beyond the 200-period Simple Moving Average (SMA) on the 4-hour chart is needed to reaffirm the constructive outlook. The precious metal might then test the initial resistance at the 50.0% retracement at $4,163.16 and then the 61.8% Fibo. retracement at $4,215.39. This is followed by the 78.6% level at $4,289.75 before the cycle high at $4,384.47.
On the downside, immediate support is seen at the 200-period SMA around $4,128.26, ahead of the 38.2% retracement at $4,110.93 and the 23.6% Fibo. level at $4,046.31, with a deeper floor coming in near the structural low at $3,941.85.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
- WTI Oil reaches six-week highs at 86.00 and is 26% up on the month so far.
- Market concerns that the Middle East conflict might escalate out of control are pushing crude prices higher.
- Reports hinting at the closure of the Red Sea waterway are boosting Oil prices further.
Oil prices continue rallying on Wednesday as hostilities in Iran threaten to escalate out of control, and reports of vessels turning around in the Red Sea heighten concerns about supply disruptions. Against this background, the US Benchmark West Texas Intermediate (WTI) has reached fresh six-week highs past $86, and appreciates 26% so far in July.
The US military hit targets in Iran for the 11th consecutive day on Wednesday, and US President Donald Trump threatened to attack the Pickaxe Mountain, an area which is believed to hide an underground nuclear facility. Tehran affirmed that any attack on nuclear sites would extend the conflict to the region.
Supply risks intensify across key corridors
Meanwhile, Reuters reported that three Saudi Arabian vessels have turned around in the Red Sea, following the announcement of a blockade of the Bab el-Mandeb Strait by Yemen’s Iran-backed Houthi militias. This is another key waterway for Saudi Crude, and its closure will, highly likely, accentuate fears about supply disruptions.
Analysts at Rabobank’s RaboResearch Global Economics & Markets team highlight that crude benchmarks have surged on mounting supply concerns, noting that “Brent, WTI, and refined products rallied sharply as Hormuz disruptions, intensified Russia-Ukraine strikes, CPC terminal outages, and record-tight diesel markets renewed fears of a broader supply crunch.” The bank frames these overlapping disruptions as a significant escalation in perceived supply risk, with the combination of geopolitical tensions, infrastructure outages and tight diesel availability reinforcing the market’s focus on potential constraints to global Oil flows.
On Tuesday, data released by the American Petroleum Institute (API) revealed that Crude Oil stocks increased by 2.6 million barrels in the week of July 17, against market expectations of a 1.5 million decline, as demand declined. The relief in Oil prices provided by these figures, however, has been short-lived, with the war in Iran attracting all the attention.
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.
ING’s Chris Turner relays UK economist James Smith’s view that underlying United Kingdom (UK) inflation is moving in the right direction despite slightly higher core data. Falling food and petrol prices and softer core services inflation suggest domestically generated inflation is benign. Sterling is a bit weaker on the data, and EUR/GBP may have set a significant low at 0.8455.
Benign inflation weighs on Pound
"Despite the slightly higher-than-expected UK June core inflation data this morning, ING's UK economist, James Smith, thinks the underlying trend is heading in the right direction. Here is what he says:"
""Firstly, headline inflation fell more than expected on a second-consecutive monthly fall in food prices. This basically never happened – and wasn't what was supposed to happen after the Iran war. Yes, the impact on food inflation will take several months to come through in full, but for the Bank of England hawks who worry about the salience of food and petrol prices for consumer inflation expectations, the fact you have both falling in outright terms between May and June is welcome news. Then on services, when we calculate the BoE's preferred 'core services' metric excluding volatile and indexed categories, that fell more sharply than overall services inflation – from 3.8% to 3.6%. The trend looks good, and together with low private-sector wage growth, suggests domestically-generated inflation is benign right now.""
"Sterling is a little weaker on the data and EUR/GBP may well have put in a significant low at 0.8455 last week."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Here is what you need to know on Wednesday, July 22:
Markets remain on edge midweek as tensions in the Middle East escalate further, with the United States (US) and Iran continuing to exchange strikes. The economic calendar will not offer any high-impact data releases on Wednesday, allowing investors to stay focused on headlines surrounding geopolitics.
The US Dollar (USD) Index registered gains for the fourth consecutive trading day on Tuesday and reached its highest level in over a week above 101.20. Early Wednesday, the USD Index stays in a consolidation phase above 101.00.
Heightened tensions threaten carry trades as Oil shock risk builds
Analysts at OCBC say their “base case has been for a managed escalation in the Middle East, allowing low market volatility to persist, supporting FX carry trades and limiting further USD gains ahead of next week’s FOMC meeting.” However, they caution that “the risk of a broader conflict has risen following the deaths of three US soldiers in Iran-linked attacks,” shifting the balance of risks around energy markets and the Dollar.
OCBC warns that “a larger escalation could revive fears of a prolonged supply shock and drive oil prices back above USD100/bbl.” They note that, “for perspective, Brent crude reached USD126/bbl in late April, around 40% above current levels,” underscoring the potential scale of any renewed spike.
In such a scenario, the bank argues that “such an outcome would likely trigger higher market volatility, erode the appeal of FX carry trades, and support a renewed USD rally,” as investors reassess both geopolitical risk and the implications of higher Oil prices for the policy outlook.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.56% | 0.49% | 0.60% | -0.42% | 0.28% | 0.51% | |
| EUR | -0.16% | 0.41% | 0.26% | 0.44% | -0.58% | 0.11% | 0.34% | |
| GBP | -0.56% | -0.41% | -0.15% | 0.03% | -0.98% | -0.29% | -0.02% | |
| JPY | -0.49% | -0.26% | 0.15% | 0.21% | -0.85% | -0.25% | 0.13% | |
| CAD | -0.60% | -0.44% | -0.03% | -0.21% | -0.98% | -0.46% | -0.06% | |
| AUD | 0.42% | 0.58% | 0.98% | 0.85% | 0.98% | 0.70% | 0.96% | |
| NZD | -0.28% | -0.11% | 0.29% | 0.25% | 0.46% | -0.70% | 0.27% | |
| CHF | -0.51% | -0.34% | 0.02% | -0.13% | 0.06% | -0.96% | -0.27% |
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).
Crude Oil prices push higher early Tuesday, with the barrel of West Texas Intermediate trading at its higher level in over a month near $86, rising more than 1.5% on the day. The US military announced late Tuesday that it conducted more strikes on Iranian “military targets.” In the meantime, US Secretary of State Marco Rubio said that Iran is “not serious about talks” and argued that allowing Iran to control the Strait of Hormuz would create a "dangerous precedent."
Meanwhile, two tankers carrying Saudi Oil turned back after Houthi threats in the Red Sea, and US President Donald Trump said they could soon target the area of Pickaxe Mountain, where Iran is believed to have an underground facility for its nuclear programme.
Middle East risks keep Brent elevated as Hormuz and Saudi routes face disruption
Analysts at Rabobank warn that Middle East supply routes remain highly fragile, with “Hormuz remains on a knife-edge, with most flows halted save those taking the Iranian route.” They add that the situation has deteriorated further after “two tankers carrying Saudi crude made U-turns in the Red Sea after a Houthi warning,” describing this as “the first sign of the threatened blockade of Saudi ports.” Against that backdrop, Rabobank argues that the developing disruption “will not allow energy markets to ‘take the summer off’ rather than taking off.”
The UK's Office for National Statistics reported on Wednesday that annual inflation, as measured by the change in the Consumer Price Index (CPI), softened to 2.6% in June from 2.8% in July. This reading came in below the market expectation of 2.7%. The core CPI, which excludes volatile energy and food prices, rose 2.6% in this period, matching May's reading. Following a four-day decline, GBP/USD holds steady after inflation data and trades in a narrow range below 1.3400.
AUD/USD extends its sideways grind near 0.7000 after closing virtually unchanged on Tuesday. In the early Asian session on Thursday, June employment data from Australia will be watched closely by market participants.
Gold (XAU/USD) gathered bullish momentum and rose more than 1.5% on Tuesday. XAU/USD continues to stretch higher early Wednesday and trades at its highest level in nearly two weeks above $4,100.
EUR/USD corrects higher and clings to small gains above 1.1400 in the European session on Wednesday.
USD/JPY advanced to its highest level in nearly four decades above 163.00 on Tuesday. The pair corrects lower and trades at around 162.90 in the European morning on Wednesday.
USD/JPY surge and rising jgb yields sharpen focus on domestic investment
Strategists at Rabobank highlight that USD/JPY has moved “past 163,” warning that “the risk of a potential surge in oil prices, its auto sector losing its home base, and an unstable geopolitical environment is hardly a recipe for market calm.” Against this backdrop of heightened currency and geopolitical stress, they note a clear policy push to bolster domestic capital markets. Rabobank points out that Finance Minister Katayama recently stated: “We would like to pursue measures that would encourage pension funds, including GPIF [which manages $1.8 trillion], to make substantially greater investments in Japanese financial assets.” The bank adds that the minister “wants Japanese households to do the same,” underscoring the authorities’ determination to channel more domestic savings into Japan’s financial assets.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
- USD/CAD drops as the Canadian Dollar gains support from WTI crude holding gains near $86.00.
- President Trump downplayed immediate Tehran talks and pledged to respond to any Houthi waterway interference without specifying actions.
- Markets are currently pricing in over 69% odds of a 25 basis-point Fed rate hike this September, per CME FedWatch.
USD/CAD declines after to days of gains, trading around 1.4100 during the early European hours on Wednesday. The pair loses ground as the commodity-linked Canadian Dollar (CAD) receives support from higher oil prices.
West Texas Intermediate (WTI) oil price gains ground for the second successive day, trading around $86.00 per barrel at the time of writing. Crude oil prices surge as supply risks intensified across several key export routes, extending well beyond the Middle East.
US President Donald Trump downplayed the likelihood of immediate negotiations with Tehran, pledging to respond if the Houthi militants interfered with the waterway, though he did not outline specific action. In response, Iran's top military command stated via the Xinhua news agency that Tehran will expand its strikes to target US and allied assets across the region if the US attacks Iranian nuclear facilities.
The USD/CAD pair holds ground as the US Dollar (USD) struggles despite growing risk aversion tied to escalating geopolitical tensions between the United States and Iran. However, the Greenback may regain its ground as CME FedWatch Tool indicates that markets are currently pricing in over 69% odds of at least a 25 basis-point rate hike at the upcoming September meeting. However, the Fed is widely expected to leave the federal funds rate unchanged. Despite this anticipated pause, expectations for tighter policy remain elevated beyond July.
Fed Chair Warsh has repeatedly stressed that inflation remains a key concern for the central bank. This cautious stance has been echoed by several other Fed officials in recent weeks as they navigate ongoing economic pressures. Policymakers have now entered their customary blackout period ahead of next week's FOMC meeting.
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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