Forex News
- USD/CAD fell as the US Dollar weakened as markets increasingly expect the Federal Reserve to pause interest rate hikes.
- CME FedWatch Tool suggests that traders price in nearly an 84% chance the Fed keeps rates unchanged this month.
- Commodity-linked CAD could struggle as WTI falls amid US sanctions waivers on Russia to boost global oil supply.
USD/CAD inches higher after opening at a bearish gap, remaining in negative territory, trading around 1.4120 during Asian hours on Monday. The currency pair remains subdued as the US Dollar (USD) struggles under fading expectations for a Federal Reserve (Fed) rate hike in October. Market sentiment shifted after Fed Chairman Kevin Warsh spoke at an International Monetary Fund event on Friday, stating that he does not prejudge interest-rate decisions and offering no clear indication of whether the central bank will raise or hold short-term rates at its upcoming October 27–28 meeting.
Market expectations for a rate increase have dropped significantly. According to the CME FedWatch Tool, traders are now pricing in nearly an 83.9% probability that the Fed will keep interest rates unchanged later this month, a sharp rise from the 49% chance priced in just a month earlier.
The USD/CAD pair may appreciate as the commodity-linked Canadian Dollar (CAD) could face challenges amid lower oil prices. Crude oil prices slipped following US President Donald Trump’s decision to waive key sanctions and tariffs on Russia, a move expected to boost Russian fuel exports. The executive order signed on Friday paused restrictions under the Graham Act, a bill Trump had signed just last month under pressure from lawmakers seeking to punish Moscow over its war in Ukraine. Secretary of State Marco Rubio noted that the president will take up to 60 days to evaluate the economic impact of this waiver.
BoC watchers focus on inflation and business survey for signs of energy shock spillover
Economists at Royal Bank of Canada say Monday’s release of Canadian inflation data alongside the BoC’s Q3 Business Outlook Survey will be scrutinized for evidence that price pressures are becoming more entrenched. They note that markets will be watching “closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy,” a development that would complicate the policy outlook ahead of the Oct. 28 decision.
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.
- Gold price gains ground to near $4,175 in Monday’s early Asian session.
- Fed Chairman declined to signal an imminent policy move during remarks at the IMF meetings in Bangkok.
- Geopolitical risks and the US-Iran situation will be closely watched.
Gold price (XAU/USD) drifts higher to around $4,175 during the early Asian trading hours on Monday. The precious metal recovers amid fading expectations for a Federal Reserve (Fed) rate hike. Traders will closely monitor the developments surrounding geopolitical risks and Middle East tensions.
Despite hotter-than-expected US inflation data, market expectations have shifted. Fed Chair Kevin Warsh voiced optimism about US economic strength but gave no clues about the US rate-path trajectory. Traders largely expect the Fed to hold rates steady in the October policy meeting, while pricing in a 91.8% probability of a rate hike in December, according to the CME's FedWatch Tool.
"While inflation remains a concern and further tightening cannot be ruled out, Warsh’s latest tone suggests little urgency to deliver consecutive rate hikes," said Gerald Gan, chief investment officer at Reed Capital Partners.
US President Donald Trump said he cut a diesel export deal with Russia and blocked numerous sanctions because he doesn’t want to drive Vladimir Putin away from peace talks with Ukraine, per Bloomberg.
Meanwhile, an Iranian official warned on Sunday that Tehran has prepared a new retaliation plan for any renewed US-Israeli attack, as maritime authorities reported several separate attacks on commercial vessels around the Strait of Hormuz. Ongoing tensions between Russia and Ukraine, and conflicts in the Middle East could drive oil-inflation concerns and weigh on the yellow metal.
Bond rally deepens as AI growth worries outweigh hawkish US data
According to Deutsche Bank’s Early Morning Reid report, “the theme of the day was a big global rate rally, as the prospect of slower AI growth pushed yields lower across the board.” In the US, “the 2yr yield (-5.9bps) fell to 4.74%, whilst the 10yr yield (-12.7bps) was down to 5.06%.” Deutsche Bank highlights that this was “a global pattern as well, with yields on 10yr bunds (-5.3bps), OATs (-8.5bps) and BTPs (-6.7bps) all falling over the session.”
The bank stresses that this move came “even as bonds were rallying” in the face of “another batch of hawkish US data,” noting that “AI growth concerns continued to outweigh the inflation impulse when it came to yields.” They flag “a huge upside surprise in PPI inflation, with headline inflation up +1.3% in September (vs. +0.6% expected),” yet real yields still moved lower, reinforcing the recent backdrop of falling US real rates and easing breakevens that has been supportive for Gold.
Warsh flags investment surge and AI demand risks while avoiding policy pre-commitment
Fed Chair Warsh delivered a moderately constructive but cautious message, with a 5.6/10 FXS Speechtracker score undershooting the 6.1/10 historical average and signaling slightly softer conviction than the established baseline. The admission of being “over-scarred from the global financial crisis” underscores a persistent risk-averse bias even as Warsh highlights a structural growth and investment surge driven by “good policies,” and stresses that upcoming October and December meetings will be the “crystallizing moment” for judging output, employment, and inflation. Warsh’s focus on AI as a near-term demand-side force with uncertain employment effects, alongside an insistence on not pre-judging meetings, points to a Fed that is open to further tightening if data warrant but reluctant to pre-commit, a stance that is mildly supportive for the Dollar via higher-for-longer expectations tempered by risk-management caution.
The FXS Fed Sentiment Index was unchanged on the speech, with a 0.00-point move leaving the index at 127.51, firmly in hawkish territory despite the slightly softer FXS Speechtracker score relative to the historical average. The stable but elevated FXS Fed Sentiment Index level suggests markets see Warsh’s emphasis on price stability, investment-led structural growth, and AI-driven demand as consistent with a still-hawkish reaction function, even if the tone was somewhat less forceful than the established baseline.
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD holds beneath a dense cap of resistance that keeps the near-term tone bearish. Spot gold is lodged under the 20-period Bollinger simple moving average and the 100-day simple moving average, suggesting rallies remain vulnerable while price stays below these reference lines. The upper Bollinger band marks a more distant ceiling, while a subdued Relative Strength Index at 45.92 hints at weak upside momentum rather than oversold stress.
On the downside, initial support is aligned with the lower Bollinger band around $4,053.65, where volatility-based demand could emerge if sellers extend the decline. On the topside, a daily close back above the mid-Bollinger band at $4,185 would be the first sign of stabilization, though bears would likely defend the 100-day SMA at $4,240 ahead of the upper band barrier at $4,315.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
- GBP/USD attracts some dip-buyers at the start of a new week, though it lacks follow-through.
- Hawkish Fed expectations and geopolitical risks support the safe-haven USD, capping the pair.
- November BoE rate hike bets might continue to act as a tailwind for the GBP and spot prices.
The GBP/USD pair bounces off the 1.3300 neighborhood at the start of a new week, stalling Friday's modest pullback from its highest level since September 23. Spot prices, however, lack follow-through and currently trade around the 1.3330 region, unchanged for the day as the US Dollar (USD) selling seems to have abated.
The USD dropped to a two-week low on Friday, snapping a four-week winning streak, amid the recent sharp decline in US government bond yields from multi-year highs. Moreover, US Federal Reserve (Fed) Chair Kevin Warsh’s unwillingness to provide any signals on further policy moves led to a reduction in odds for policy tightening later this month and outweighed significantly hotter-than-expected inflation reports, which keep USD bulls on the back foot.
Market players, however, are still pricing in over a 90% chance that the US central bank will raise borrowing costs in December amid inflation risks stemming from rising energy prices. In fact, crude oil prices rallied to a nearly one-month high on Friday amid escalating Middle East tensions. Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Sunday that an oil tanker caught fire and exploded after striking a naval mine in the Strait of Hormuz.
Furthermore, a secretary of Iran’s Supreme National Security Council, Mohsen Rezaei, warned that Tehran has prepared a new retaliation plan for any renewed US-Israeli attack. This keeps the geopolitical risk premium in play, lending some support to the safe-haven buck and capping the upside for the GBP/USD pair. That said, firming expectations of a 25 basis points (bps) Bank of England (BoE) rate hike in November should act as a tailwind for the British Pound (GBP).
GBP/USD daily chart
Technical Analysis
The GBP/USD holds below the 100-day Simple Moving Average (SMA) at 1.3390 and the 50.0% Fibonacci retracement at 1.3406, which keeps the broader tone bearish despite the recent bounce. Immediate topside pressure is reinforced by the nearby 38.2% Fibo. retracement at 1.3343, suggesting that rallies are likely to struggle while spot prices remain capped beneath this dense resistance band.
On the downside, first support emerges at the 23.6% retracement at 1.3265, with a deeper floor at 1.3138, where the Fibonacci cycle low comes in.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
On Monday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.7208 compared to Friday's fix of 6.7220 and 6.6897 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
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