Forex News

• USD/CAD climbs to a fresh two-month high as the US-Canada yield gap widens.
• The Canadian Dollar remains under pressure despite a rebound in Oil prices, with traders weighing diverging Fed and BoC outlooks.
• Markets turn to Canadian GDP and key US data this week for fresh direction on USD/CAD.

USD/CAD extends its rally on Monday as diverging monetary policy outlooks between the Federal Reserve (Fed) and the Bank of Canada (BoC) keep the US Dollar (USD) favoured, outweighing support for the commodity-linked Canadian Dollar (CAD) from higher Oil prices. At the time of writing, the pair trades around 1.4165, its highest level since July 13.

Oil prices rebound as traders react to the setback in US-Iran talks. US President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, though he told Axios he expects US negotiators to hold further talks this week.

The Canadian Dollar has lost more than 2% so far this month as the US-Canada yield gap widens. The US 2-year Treasury yield trades near 4.90%, compared with around 3.37% for its Canadian counterpart. The gap between the 10-year yields is also wide, with US Treasuries near 5.21% and Canadian government bonds around 3.96%.

The Fed raised interest rates by 25 basis points (bps) at its September 15-16 meeting, lifting the federal funds rate to 3.75%-4.00%, and signalled that further tightening may be needed as policymakers work to bring inflation back toward the 2% target. Hawkish comments from Fed officials last week strengthened expectations for additional rate hikes, with markets now pricing in a 70% chance of a rate increase in October, according to CME FedWatch.

Strategists at Brown Brothers Harriman argue that the USD “can continue to benefit from widening US-G6 interest rate differentials and rising US longer-term real yields,” underpinning the currency’s recent resilience. However, they caution that “tightening by other major central banks limits policy divergence with the Fed and suggests DXY could struggle to sustain an overshoot of its June 24 high at 101.80.” Even so, Brown Brothers Harriman believes that “US economic growth outperformance and strong foreign appetite for US securities can override that upside USD constraint,” keeping the Dollar fundamentally supported despite technical headwinds for the index.

The BoC, by contrast, kept its policy rate at 2.25%, noting limited spillover from higher energy prices into broader inflation. However, the central bank said it was prepared to adjust monetary policy as needed, acknowledging that upside risks to inflation had increased while new tariffs made the growth outlook more uncertain.

Traders now turn to Canada’s July Gross Domestic Product (GDP) data on Tuesday. In the United States, the Personal Consumption Expenditures (PCE) inflation report is due Wednesday, the ISM Manufacturing Purchasing Managers’ Index (PMI) on Thursday and the Nonfarm Payrolls (NFP) report on Friday.

• Mediators are expected to hold separate talks with the United States and Iran on Monday or Tuesday.
• Iran’s Foreign Minister and Qatari mediators remain in the United States.
• Discussions are expected to focus on an amended version of Iran’s seven-day proposal.

The United States (US) and Iran are expected to resume indirect talks as early as Monday or Tuesday, according to an official briefed on the negotiations cited by Reuters.

Mediators are expected to hold separate talks with US and Iranian representatives. Iranian Foreign Minister Abbas Araghchi and Qatari mediators remain in the US ahead of the discussions.

The talks are expected to focus on an amended version of a seven-day proposal presented by Iran on the sidelines of the United Nations General Assembly (UNGA).

Market reaction

Financial markets show a relatively muted reaction to the latest diplomatic developments. The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, rises 0.08% on Monday to trade around 101.10. The West Texas Intermediate (WTI) US Oil retreats slightly from an intraday high of $95.02 but remains up 2.66% on Monday, trading around $93.80 per barrel.

• AUD/NZD is looking for direction below 1.2400 after a mild correction from 1.2491 highs.
• The market is already pricing in a quarter-point RBA rate hike on Tuesday.
• The 4-hour RSI is showing a bearish divergence, suggesting the possibility of a deeper correction.

The Aussie Dollar (AUD) trades practically flat around 1.2390 against the New Zealand Dollar (NZD) on Monday, with all eyes on the Reserve Bank of Australia (RBA), which is expected to hike interest rates on Tuesday. The pair has been rallying non-stop since mid-August, reaching 13-year highs at 1.2491 last week, but technical indicators suggest that bulls might be losing steam

The RBA is widely expected to hike its benchmark interest rate to a 15-year high at  4.6%. Governor Michelle Bullock, however, faces an increasingly challenging situation as inflation risks remain high while economic growth starts to weaken according to September’s Purchasing Managers' Index (PMI) figures, posing a very challenging scenario for a central bank. 

The Reserve Bank of New Zealand (RBNZ), on the contrary, has more room to tighten its monetary policy as its benchmark interest rate is at a more moderate 2.75%. The RBNZ, however, conveyed a dovish message after its latest monetary policy decision earlier this month, which has kept the Kiwi from appreciating further.

Technical Analysis: Bearish divergence hints at fading upside traction

AUD/NZD trades at 1.2391, consolidating gains after a more than 4% August-September rally, but the bearish divergence on the 4-hour Relative Strength Index (14), which has also crossed below the key 50 level, and the lowest high on September 23, should act as a warning for bulls.

The Moving Average Convergence Divergence (MACD), in the same timeframe, flattens near the zero line, hinting at a lack of directional conviction in the current range.

Initial support is located at the 1.2370 area (September 16, 24 lows), ahead of the area between 1.2270 and 1.2285, September 7 and 11 lows, respectively. On the topside, above last week's high at 1.2491, and the psychological 1.2500 area, the 1.272% Fibonacci extension of the mentioned rally, at 1.2615, seems a plausible target for bulls.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• The Indian Rupee declines against the US Dollar due to a rise in oil prices over the weekend.
• US President Trump pushes back hopes of near-term diplomacy with Iran.
• Analysts at MUFG expect the RBI to deliver 50bps interest rate hike in the remaining year.

The Indian Rupee (INR) starts the week on a negative note against the US Dollar (USD) due to significant gains in oil prices over the weekend. As of writing, the USD/INR pair is up 0.18% to near 95.99.

At press time, the MCX Crude Oil contract expiring on October 19 is up 4% to near Rs. 9,200.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Meanwhile, the Reserve Bank of India (RBI) continues to provide support to the Indian currency through intervention in both spot and Non-Deliverable Forwards (NDFs) markets. "Nearly every day we have seen ‌some amount of interventions, which signals that the RBI wants to keep a firm ‌floor under the rupee for ​now, traders say, Reuters reported.

What caused a significant increase in oil prices over the weekend?

Oil prices attracted significant bids as United States (US) President Donald Trump pushed back hopes of diplomacy with Iran, adding that additional military strikes before the midterm elections are possible, Fox News reported. Trump expressed confidence that Washington is going to win this war very soon, and as soon as we win it, the oil will go down, way down to what it was before the war.

Meanwhile, Iran’s Foreign Minister, Abbas Araghchi, says his country is open to “real diplomacy” but ready for an “apocalyptic war” if the US attacks again, Al Jazeera reported.

US Yields remain key concern

Elevated US bond yields due to firm expectations that the Federal Reserve (Fed) will hike interest rates again this year continue to remain a key concern for riskier assets. 10-year US Treasury Yields remain firm near its 19-year high of 5.23% posted on Friday.

Strategists at OCBC note that the recent run of resilient US data and sticky inflation has translated into firmer expectations for further Fed action, with “market pricing currently implies around a 70% probability of another 25bp rate hike in October, highlighting the market's growing conviction that the Fed's inflation fight is not yet over.”

RBI caution persists as inflation risks linger despite subdued headline prints

Analysts at Commerzbank highlight that, although "year-to-date CPI inflation has averaged 3.8%, below the Reserve Bank of India's (RBI) FY2026-2027 forecast of 5.0%", the underlying price backdrop remains concerning. They argue that "the persistence of cost pressures suggests policymakers will likely maintain a cautious stance," reinforcing their view that the RBI will stay in "wait-and-see mode." In Commerzbank’s assessment, "higher global crude oil prices and evidence of second-round effects continue to pose upside risks to the inflation outlook," keeping the central bank wary even as headline inflation runs below target projections.

Contrary to the view from Commerzbank, strategists at MUFG view firm domestic growth and signs of broadening in core pressures are strengthening the case for a shallow 50bp hike in second half of FY27, making October’s meeting a live one.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.99, holding above the 20-period exponential moving average (EMA) at 95.64, which keeps the near-term bias bullish. The recent recovery from sub-95.00 levels is supported by a Relative Strength Index (RSI) at 60.18, suggesting constructive but not overextended momentum as the pair consolidates near recent highs.

On the downside, immediate support is seen at the 20-day EMA around 95.64, which protects the advance and would need to give way to signal a deeper corrective phase. Looking up, the 96.10 is the immediate hurdle for the pair.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

United Kingdom (UK) Chancellor of the Exchequer John Healey said during the European trade on Monday that the administration will maintain control of Britain's finances while speaking about the upcoming fiscal budget this year.

Additional remarks

We will meet fiscal rules.

It falls to us to act to reduce the welfare bill.

Market reaction

There has been some upside in the British Pound (GBP) against the US Dollar (USD) since the release of UK Chancellor Healey's comments. However, the bids followed the GBP/USD pair are driven by some correction in the US Dollar. At press time, GBP/USD is up 0.17% to near 1.3265.

• The British Pound rises against its major peers on hawkish BoE prospects.
• Market experts see risks in the UK labor market and economic outlook.
• Investors keenly await the US PCE Inflation and the NFP data.

The British Pound (GBP) trades higher against its major currency peers, except the Japanese Yen (JPY) on Monday. In the European trade, the British currency is up 0.13% to near 1.3256 against the US Dollar (USD).

The Pound Sterling gains as a slew of Bank of England (BoE) members have stressed on higher inflationry pressures, keeping the possibility of ineterst rate hikes alre.

Ramsden flags upside inflation risks, supports firmer GBP

BoE’s Ramsden scores 8.4/10 on FXS Speechtracker, notably above the historic 7.1/10 baseline, signaling a stronger-than-usual policy impact. The focus on external inflation pressures from energy, weather and AI supply chains, alongside domestic indirect effects in food prices and potential second-round effects, marks a clear hawkish tilt.

By stating that risks to the inflation outlook have shifted to the upside and that continued upside pressures could justify increasing Bank Rate, Ramsden reinforces expectations of a more restrictive stance. This hawkish bias is supportive for GBP, especially against lower-yielding currencies, as markets may reprice the path of UK rates higher.

The comments from BoE’s Ramsden expressing the likelihood of an interest rate hike carry a significant importance, as he voted to leave interest rates steady at 3.75% in the policy meeting this month.

Last week, BoE Governor Andrew Bailey also warned of upside inflation risks, adding that it could force us [central bank] to go against their "no interest rate hike stance".

Bailey flags AI upside but warns energy risks could still lift Pound

FXS Speechtracker score of 8.2, well above the 6.3 historic average, signals a notably more hawkish tone from Governor Bailey. The warning that prolonged high energy prices make it harder to maintain a no-hike stance points to upside risks for the Bank Rate and supports a firmer Pound bias.

Comments on subdued pass-through of energy prices suggest some near-term caution, but the emphasis on monitoring mortgage rate rises shows sensitivity to domestic conditions rather than a clear pivot to easing. The remark that AI could be a positive shock in an era of negative supply shocks adds a medium-term constructive angle, reinforcing the idea that policy may stay relatively tight while waiting to see if productivity gains materialize.

Financial markets have priced in about 100 basis points (bps) of BoE rate hikes in the next twelve months to 4.75%, analysts at Brown Brothers Harriman (BBH) said in a note.

The strength in the British Pound could prove to be short-lived, as market experts express concerns over United Kingdom’s (UK) economic and labor market outlook.

Pound outlook pressured as UK growth concerns meet complex BoE policy mix

Analysts at HSBC warn that “weak UK labour demand and sluggish private sector momentum could weigh on the GBP in the near term, particularly as the US economy is looking more resilient.” They note that “markets are already pricing around 100bp of tightening from the Bank of England by July 2027,” but caution that “higher energy prices create a difficult policy mix: inflation risks are rising even as growth momentum faces a challenging outlook,” leaving the Pound vulnerable as policy trade-offs become more acute.

On the US Dollar front, the currency consolidates at the start of the United States (US) data-packed week. This week, notable economic releases are Personal Consumption Expenditure (PCE) Price Index data for August and the Nonfarm Payrolls (NFP) data for September. The data is expected to have a significant on Federal Reserve’s (Fed) interest rate expectations.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3251, maintaining a bearish near-term bias as spot holds below the 20-day exponential moving average (EMA) at 1.3388. Price action remains pressured by this overhead dynamic barrier, while the Relative Strength Index (RSI) at 29.8 slips into oversold territory, hinting that the recent slide is stretched but not yet decisively reversed.

On the topside, immediate resistance is located at the 20-day EMA around 1.3388, and a daily close above this level would be needed to ease prevailing downside pressure and open the way for a more sustained recovery. As long as GBP/USD trades beneath this average, the pair is likely to stay vulnerable to further losses, with traders watching for any RSI rebound from oversold readings as a signal that selling momentum may be starting to fade.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Lee Hardman at MUFG highlights that Oil has been one of the biggest movers, with prices rising back towards recent highs around USD110/barrel. The move reflects disappointment over limited progress on a US–Iran deal to reopen the Strait of Hormuz, while geopolitical tensions including attacks near Riyadh add to the risk backdrop and help sustain higher energy prices and global bond market sell-offs.

Geopolitics sustain elevated prices

"One of the biggest movers overnight has been the price of oil which has risen back up towards recent highs at around USD110/barrel."

"It reflects some disappointment over the lack of progress towards a deal to end the US-Iran conflict and re-open the Strait of Hormuz."

"US and Iranian negotiators have reportedly been exploring a deal that would see Tehran reopen the Strait and Washington lift the blockade of Iranian ports."

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

• EUR/GBP extends its reversal from 0.8610 resistance to the support area at 0.8570.
• Brent Oil prices have rallied above the key $100 level, adding pressure on Eurozone economies.
• BoE Governor Bailey hinted at higher rate hikes on Friday and provided fresh support to the Pound.

The Euro (EUR) is dropping sharply against the British Pound (GBP) on Monday, with EUR/GBP bears testing support at the 0.8570 area, reversing last week's gains in a day following rejection at the 0.8610 resistance area. The Euro depreciates against most peers on Monday as Brent Oil prices cross the psychological $100 per barrel.

In the absence of key Eurozone macroeconomic data, the rally in crude prices triggered by US President Donald Trump's rejection of the latest peace proposal presented by Tehran is acting as the main market driver on Monday, and putting the Euro against the ropes.

Beyond that, Bank of England Deputy Governor Dave Ramsden affirmed earlier in the day that interest rates may have to rise if inflation pressures build. These comments follow similar ones by Governor Andrew Bailey and Deputy Governor Clare Lombardell last week and provide additional support to the Pound.

Technical Analysis: Bears take control and push against 0.8570

EUR/GBP trades at 0.8579, after testing last week's lows in the 0,8570 area, with bearish momentum building up. Indicators on the 4-hour chart are in deeply negative territory, with the 14-period Relative Strength Index (RSI) approaching oversold levels and the Moving Average Convergence Divergence (MACD) showing widening red bars.

The mentioned support area at 0.8570, which held bears on September 18, 19, and 22, is containing downside attempts for now, but rallies remain capped, keeping the immediate negative trend in place. A confirmation below that level would expose the ascending channel's floor at 0.8560, ahead of the area between the August 25 and September 15 lows, around 0.8550.

On the upside, the pair has a significant resistance area between the session highs at the mentioned 0.8610 and the channel top, now around 0.8615. Further up, the late June highs in the 0.8630 area would come into focus.

(The technical analysis of this story was written with the help of an AI tool. Know more.)