Forex News

• EUR/CAD remains under pressure near two-week lows as higher Oil prices support the commodity-linked Canadian Dollar.
• Canada’s softer-than-expected inflation data reinforces expectations that the BoC could keep rates unchanged in the near term.
• Focus now shifts to Wednesday’s Eurozone inflation data amid uncertainty over the ECB’s tightening path.

The Euro (EUR) weakens against the Canadian Dollar (CAD) on Tuesday as rising Oil prices linked to the US-Iran conflict continue to support the commodity-linked Loonie, even as the latest Canadian inflation data came in softer than expected. At the time of writing, EUR/CAD is trading around 1.5970, hovering near two-week lows.

Statistics Canada reported on Tuesday that the Consumer Price Index (CPI) rose 0.4% MoM in April, slowing from the 0.9% increase recorded in March and missing market expectations of 0.6%. On an annual basis, CPI accelerated to 2.8% from 2.4% previously, though the reading still came in below the 3.1% forecast.

Meanwhile, the Bank of Canada’s (BoC) core CPI eased to 2.1% YoY in April from 2.5% in the previous month, suggesting that higher energy prices are not yet spilling into broader inflation pressures.

The softer-than-expected inflation data, combined with weaker labor market figures released earlier this month, could allow the BoC to keep its current policy stance unchanged as policymakers continue to look through the impact of higher energy prices.

However, markets continue to price in the possibility of a rate hike later this year if Oil-driven price pressures begin feeding more broadly into the economy.

Attention now turns to the Eurozone inflation data due on Wednesday, which could provide fresh clues on the European Central Bank’s (ECB) policy outlook. Economists expect the Core Harmonized Index of Consumer Prices (HICP) to remain unchanged at 2.2% YoY in April, while the monthly headline HICP is also forecast to hold steady at 1.0%.

Traders are currently pricing in at least two ECB rate hikes by the end of the year. However, the Eurozone’s heavy dependence on imported energy and the growing risk of slower economic growth are raising questions over whether the ECB will be able to raise interest rates as much as markets expect.

ECB policymaker François Villeroy de Galhau said on Tuesday that the central bank “will be ready to act as needed,” while Joachim Nagel stated that the ECB will base its June decision on incoming data. Nagel also warned that the Eurozone is moving away from the baseline economic scenario and said the current energy supply shock appears more persistent.

TD Securities’ FX strategists Howard Du and Linda Cheng note that soft April Canada inflation and weak employment data should keep USD/CAD supported near 1.37 in Q2 2026. They argue BoC rate hike pricing for 2026 still has room to fall, with a more sustained USD/CAD downtrend only expected to develop in H2 2026 as Canadian data improve and USMCA risks ease.

USD/CAD stays supported before H2 downtrend

"April CPI surprised to the downside with inflation firming to 2.8% y/y as prices rose by 0.4% m/m, falling short of expectations (TD & market) for a larger acceleration to 3.1% y/y."

"The broad thaw across various core inflation measures alongside further improvement in measures of inflation breadth should allow the Bank of Canada to continue looking through the impact of higher energy prices at the June meeting."

"We expect USD/CAD to stay supported in the near-term and forecast the pair to be at 1.37 in Q2. Weak employment data and soft inflation data for April continue to suggest more sustained USD/CAD downtrend will only start to form in the second half of this year."

"The soft Canada inflation data further confirms our view that USD/CAD would stay supported on a 1.37-handle for the near-term. Near-term bearish drivers remain elusive for this pair, as we believe the BoC rate hike pricing for 2026 still has room to fall. We expect more sustained USD/CAD downtrend to form in H2 2026, when economic data for Canada show more decisive signs of improvements and USMCA uncertainty starts to wane."

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

Scotiabank strategists Shaun Osborne and Eric Theoret note GBP/USD is slightly lower versus the US Dollar (USD) but outperforming most G10 peers. Mixed labour data and elevated domestic risk ahead of Consumer Price Index (CPI), PMIs (Purchasing Managers' Index) and retail sales weigh on the British Pound (GBP). However, Andy Burnham’s pledge to maintain fiscal rules and easing downside hedging costs provide some support, while technicals suggest a 1.3350–1.3450 near-term range with sub-50 but recovering RSI.

Range trade as politics steadies sentiment

"The pound is entering Tuesday’s NA session with a fractional 0.1% loss vs. the USD as it shows relative gains against all of the G10 currencies with the exception of the Skandies NOK and SEK."

"Domestic risk remains elevated into Wednesday’s CPI and Thursday’s preliminary PMI’s, ending the week with retail sales on Friday."

"In terms of politics, the latest developments are offering reassurance as market participants consider Andy Burnham’s pledge to maintain existing fiscal rules if he were to assume leadership of the UK Labour Party."

"Fundamentally, GBP rate support is eroding in response to the latest softening in UK rate expectations, while sentiment is providing an important offset as the political situation offers support and a softening in the premium for protection against GBP weakness."

"Bearish/neutral – the RSI is sub-50 but already showing signs of a recovery from last week’s low. Support has been clearly observed in the low 1.33s and spot has returned to congestion around the clustered 50/200 day MA’s at 1.3430/1.3425. We look to a near-term range bound between 1.3350 and 1.3450."

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

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US Dollar Index (DXY) is likely to overshoot the upper end of its 96.00–100.00 range as resilient United States (US) economic activity and a positive net energy balance support a more restrictive Federal Reserve (Fed). Strong foreign demand for US securities underpins the Dollar, although shrinking trade deficits may structurally weigh on USD over time.

DXY seen overshooting established range

"In our view, the dollar index (DXY) looks likely to overshoot the upper end of its nearly one year 96.00-100.00 range. The US has a positive net energy balance and resilient US economic activity backs a more restrictive Fed. Indeed, the Atlanta Fed GDPNow model estimates annualized real GDP growth of 4.0% in Q2 vs. 2.0% in Q1."

"Moreover, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed that in the twelve months to March, foreign investors accumulated $1553bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds). While down from the record high of $1680bn in January and the lowest since October 2025, the amount still dwarfs the -$700bn accumulated US trade deficit over the same period. "

"Nevertheless, we expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That’s pure balance of payments mechanics and is a structural drag on USD."

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

Barbara Lambrecht and Volkmar Baur at Commerzbank highlight diverging trends in Chinese metals. Aluminium output hit a record daily rate in April, driven by strong margins and breaching the official annual cap, yet domestic inventories have doubled to a six‑year high as demand lags.

Chinese production strength, demand concerns

"However, aluminium production stood out positively: in April, primary aluminium production was 3.1% higher than the previous year, following 2.7% in March. Daily production even reached a new record high of 129,000 tons."

"High margins – thanks to rising aluminium prices and favourable alumina prices – are driving production beyond the government’s annual production cap of 45 million tons. By way of comparison, production in April, extrapolated to the full year, stood at 47 million tons."

"Although China was able to significantly increase its aluminium exports in April against a backdrop of high production, inventories are nevertheless rising as domestic demand is not keeping pace. According to figures from the research group Shanghai Metal Markets, domestic inventories have doubled this year, reaching a six-year high of 1.37 million tons."

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

Philip Wee of DBS Group Research explains how Oil prices shape the Bank of England’s (BoE) policy outlook. The baseline assumes Oil around USD108 supports manageable second-round inflation effects and may require one or two rate hikes. An optimistic scenario sees a pause if prices fall on a diplomatic resolution to the Iran conflict, while a prolonged conflict and higher Oil would force a more hawkish response.

Energy path drives BoE policy choices

"Meanwhile, the OIS market has priced in a 58% chance of a Bank of England hike before the Fed at the July 30 meeting. BoE Chief Economist Huw Pill was the lone dissenter at the last meeting, calling for a prompt rate hike sooner rather than later."

"Under its baseline scenario, the BoE projects modest and manageable second-round effects on inflation from elevated energy prices around USD108 per barrel, which would lift CPI inflation to 3.7% by the end of 2026, close to 3.75% bank rate, and may require 1-2 hikes by late autumn to return inflation to the 2% target."

"Alternatively, the BoE’s optimistic scenario allows for a rate pause if oil prices recede on a diplomatic resolution to the Iran conflict."

"However, if a prolonged conflict materialises and lifts oil prices to new highs, the BoE will likely act to avoid falling behind the curve on inflation as it did in 2022."

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

• The New Zealand Dollar weakens against the US Dollar and loses 0.65% on Tuesday.
• Hopes for a deal between the US and Iran are slightly easing geopolitical tensions, but the Greenback remains supported.
• Investors are now awaiting the Federal Reserve meeting minutes for fresh clues on the interest rate outlook.

NZD/USD trades around 0.5835 on Tuesday at the time of writing, down 0.65% on the day as the New Zealand Dollar (NZD) faces renewed selling pressure against the US Dollar (USD). Despite encouraging signs surrounding discussions between Washington and Tehran, the Kiwi is failing to benefit from an improvement in market sentiment.

Markets are closely monitoring the latest comments from United States (US) President Donald Trump, who said there is a "very good chance" that a deal with Iran could be reached following what he described as positive progress in negotiations. Trump also stated that he had suspended an immediate military action to allow more room for diplomatic discussions, while maintaining the possibility of a large-scale intervention if no acceptable agreement is reached.

However, investors remain cautious about the prospect of a lasting resolution to tensions. Ongoing disagreements over Iran’s nuclear program and reports of explosions on Iran’s Qeshm Island continue to fuel geopolitical uncertainty, supporting demand for the US Dollar.

Meanwhile, higher Oil prices continue to fuel global inflation expectations and reinforce expectations of a more restrictive monetary policy stance from the Federal Reserve (Fed). Markets have gradually scaled back expectations for monetary easing this year, providing additional support to the Greenback.

In New Zealand, producer inflation data is nevertheless providing potential support for the New Zealand Dollar. The first-quarter Producer Price Index (PPI) Input came in at 1.4% QoQ, above expectations of 0.8%, after contracting by 0.5% in the previous quarter. Rising inflationary pressures at the producer level could strengthen speculation of a more restrictive stance from the Reserve Bank of New Zealand (RBNZ).

Investors are now awaiting the release of the Federal Open Market Committee (FOMC) minutes on Wednesday, which could provide further guidance on the future path of US interest rates.

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) keeps a defensive tone as USD/CAD grinds higher despite firm domestic yields and crude. Their fair value estimate has slipped back toward 1.35, highlighting renewed overvaluation in the pair.

CAD stays defensive

"The CAD retains a defensive undertone, unable to resist the grind higher in the USD despite relatively firm domestic yields, firm crude and relatively steady risk appetite today."

"Our fair value estimate for USD has dipped fractionally back towards the 1.35 area this morning (1.3504), stretching the USD’s apparent overvaluation back towards the more extreme divergence seen in April."

"Neutral/bullish—The USD continues to pressure the 50% retracement resistance of the March 31/May 1 decline from 1.3967 to 1.3550 at 1.3758."

"A further squeeze higher remains an obvious risk in the short run as short-term trend dynamics turn more USD-bullish."

"We look for resistance around 1.3800/15, with a firmer technical block on dollar gains likely to emerge in the upper 1.38s/low 1.39s. Support is 1.3715/25."

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