Forex News

Royal Bank of Canada (RBC) strategists analyze escalating trade tensions between Canada and the United States (US) and their impact on both economies. They note that baseline economic outlook forecasts remain stable for the US and Canada, but highlight that specific sectors, regions and cross-border supply chains, especially autos, face significant strain as tariffs rise and broaden.

Tariffs threaten sectors and supply chains

"Escalating trade tensions between Canada and the United States and tariff hikes on both sides of the border are once again clouding the economic outlook."

"While there is still much that we don’t know with U.S. Section 338 tariffs now in place and counter measures from Canada, we address the most pressing questions we receive about the economic impact from the trade conflict."

"Baseline economic outlooks forecasts remain stable for both the U.S. and Canada, but specific sectors and regions on both sides of the border will be significantly impacted."

"Economic costs would rise if tariffs continue to escalate and broaden across products."

"Cross-border supply chain integration increases the cost of potential future tariffs—particularly in the auto sector."

"Canada is more reliant on trade with the U.S. than the other way around, but specific sectors and states will be impacted more by the measures than others."

"Canadian travel spending has already adjusted dramatically to avoid U.S. trips."

"Retaliatory tariff measures are designed to change consumer business/buying behavior to reduce the amount of tariffs that are ultimately paid."

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

ING’s Peter Virovacz expects Hungary’s final 2Q26 GDP release to confirm a weaker-than-hoped quarter, with agriculture and construction dragging and services plus industry providing support. Investment is seen as a significant negative surprise on the demand side. Early 3Q data, especially July retail sales, could rebound on World Cup effects and lower fuel prices, offering some upside risk.

Weak second quarter, brighter retail outlook

"The Statistical Office will release further details on second-quarter economic activity, with final 2Q26 GDP data due on 1 September. Following a strong first quarter, expectations were for similarly robust growth in the second quarter. The estimate data was disappointing, and we will now find out why."

"We expect agriculture and construction to be major drags on growth. Services will be shown as the main driver, with a positive contribution from industry as well. In terms of final use, consumption remains king, but we anticipate a significant negative impact from investment activity – potentially the most important surprise factor."

"The first hard data regarding the third quarter will be released on 4 September. Following the disappointing retail performance in June, we are expecting a rebound. This will be partly due to the effect of the FIFA World Cup which boosted both food and non-food retail."

"With fuel prices dropping in the first half of the month and expectations of future price increases, fuel sales may have increased as well. Overall, there is some potential for an upside surprise in the July retail sales figures."

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

In an interview with Bloomberg on Friday, Cleveland Federal Reserve (Fed) President Beth Hammack said that it is time for the Fed to act with rate hikes, arguing that waiting will create pain.

Key takeaways

"Inflation will end the year around 3%, not meeting target."

"Not seeing restrictive financial conditions."

"Communicating Fed issues to public is part of the job."

"Markets complement the Fed but aren't substitute for Fed."

"Fed credibility depends on delivering on dual mandate."

There is not much restriction in the economy right now."

"Interest rates are Fed's most easily understood tool."

"Going into all Fed meetings with an open mind."

"Low interest rate era may have been unusual."

Hammack leans hawkish as Fed credibility and need for rate hikes come into focus

Fed’s Hammack delivered a distinctly hawkish message, with an FXS Speechtracker score of 8.2/10, notably above the 7.5/10 historical average and consistent with a push for tighter policy. The assertion that inflation will end the year around 3% and “not meeting target,” combined with the view that it is “time for the Fed to act with rate hikes” and that there is “not much restriction in the economy right now,” underscores a bias toward additional tightening despite the absence of clearly restrictive financial conditions. Emphasis on Fed credibility, the primacy of interest rates as the most easily understood tool, and the notion that markets complement but cannot substitute for the Fed reinforces a message that policy action, rather than market pricing alone, must deliver on the dual mandate, a mix that is typically supportive of the Dollar and yields.

The FXS Fed Sentiment Index rose by 0.59 points to 129.70, signaling a further move into firmly hawkish territory and aligning with the above-baseline FXS Speechtracker score. With the index well above the neutral 100 mark, the speech strengthens expectations for additional tightening, a backdrop that should keep the Dollar underpinned against lower-yielding peers.

• USD/JPY rises 0.14% on Friday and approaches the psychological 160.00 level.
• Tokyo core inflation accelerated while Japan’s Unemployment Rate fell to 2.4%.
• The US Dollar strengthens ahead of Kevin Warsh’s speech at Jackson Hole.

USD/JPY rises 0.14% on Friday and trades around 159.60 at the time of writing, extending its advance for a fifth consecutive day. The Japanese Yen (JPY) remains under pressure against the US Dollar (USD), despite Japanese inflation and employment data that could fuel expectations of further monetary tightening by the Bank of Japan (BoJ).

Data released on Friday by the Statistics Bureau of Japan showed that the Tokyo Consumer Price Index (CPI) eased to 1.9% YoY in August from 2% in July. However, core inflation accelerated to 1.8% from 1.7% in the previous month, beating market expectations for an unchanged 1.7% reading.

The acceleration brings underlying inflation closer to the BoJ’s 2% target and follows recent comments from BoJ Deputy Governor Ryozo Himino. Himino warned about persistent inflationary pressures and argued in favor of timely interest rate hikes to avoid the need for more aggressive tightening later.

Japan’s labor market data also strengthens the case for a less accommodative monetary policy. The Unemployment Rate fell to 2.4% in July, its lowest level in 12 months, compared with market expectations for an unchanged 2.5% reading.

BoJ hawkish bias underpinned as subsidies mask underlying price pressure

Economists at Societe Generale highlight that the “resumption of electricity and gas subsidies weighed on inflation and should continue to drag on CPI through the October data,” temporarily suppressing headline price growth. They add that, contrary to their earlier expectations, “we had expected food inflation to enter a re-acceleration phase from August, but higher upstream costs appear to need more time to feed through to consumer prices.” Even so, Societe Generale stresses that “underlying price pressure remains, however,” pointing to comments from BoJ Deputy Governor Himino that “repricing activity is likely to intensify in the coming months,” while “the Teikoku Databank survey points to another wave of price revisions toward year-end.” In their view, “this continues to support the BoJ’s hawkish path.”

The figures have failed to provide meaningful support to the Japanese Yen, however, as investors turn their attention to the United States and the annual gathering of central bankers at Jackson Hole. Federal Reserve (Fed) Chair Kevin Warsh is due to speak on Friday, with markets looking for clues about how the US central bank intends to respond to persistently elevated inflationary pressures.

The tone among several Fed officials remains supportive of tighter monetary policy. Kansas City Fed President Jeffrey Schmid said inflation remains sticky and that policymakers need to continue looking for ways to bring it down. Cleveland Fed President Beth Hammack, meanwhile, argued that it is time to act on interest rates.

Against this backdrop, the firmer US Dollar is outweighing supportive Japanese data for the Japanese Yen. USD/JPY is therefore approaching the psychological 160.00 level, with investors awaiting Warsh’s speech for fresh clues about the outlook for US interest rates.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 159.59, holding a constructive bullish bias as it stays above the rising 100-period and 200-period simple moving averages at 159.29 and 159.13, respectively. The pair also remains supported by an upward-sloping trend line, while the Relative Strength Index (RSI) around 59 suggests moderate bullish momentum without immediate overbought stress.

On the downside, initial support is seen at the nearby horizontal level of 159.50, followed by the trend-line area near 159.34 and then the clustered 100-period and 200-period SMAs at 159.29 and 159.13. On the topside, the next hurdle emerges at horizontal resistance around 159.78, and a sustained break above this barrier would likely open the way for a continuation of the intraday advance.

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

TD Securities’ Prashant Newnaha and Howard Du expect the Reserve Bank of New Zealand (RBNZ) to raise the Official Cash Rate by 25 bps to 2.75% in September, in line with market pricing. They see the OCR track broadly unchanged from May, reaching 3% by year-end and around 3.30% terminal, with further 25 bps hikes projected in December 2026 and February 2027.

RBNZ seen hiking but staying gradual

"TD expects the RBNZ to hike the Official Cash Rate (OCR) 25bps to 2.75% with the six Monetary Policy Committee (MPC) voters coming to this decision by consensus."

"With the Sep OCR meeting date more than 90% priced for a hike and data supporting a hike, we doubt the Board will spend much time debating the case to pause. Pausing would add confusion to the Bank's prior messaging."

"We see little reason for the RBNZ's OCR projection to deviate far from the May MPS forecast for now. The track should show the OCR reaching 3% by the end of this year and terminal around 3.30%."

"In due course we see the risk of the RBNZ nudging its inflation forecasts higher, bringing forward and/or lifting its current forecast of terminal at 3.30% - just not at this meeting. Following next week's hike, we expect follow-up 25bps tightening at the Bank's Dec'26 and Feb'27 meetings, taking the OCR to 3.25%."

"Given the growth outlook is tracking in line with the Bank's May forecasts, it's unlikely the output gap projection has changed from the May forecast. With no material changes to the negative output gap path anticipated, there is no compelling case to take the OCR significantly above its current 3.30% projection."

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

Nomura’s Euro area team expects the European Central Bank to raise rates by 25 basis points to 2.50% at the 10 September meeting, citing higher HICP inflation and resilient growth. They highlight hawkish comments from ECB officials and note that Brent and Dutch TTF price dynamics could shape additional tightening risks into December 2026.

Hawkish officials and energy-linked risks

"We expect the ECB to raise rates at its 10 September meeting by 25bp to 2.50% in light of rising HICP inflation, due to the Iran war, and the euro area’s economic resilience. There are clear risks of further rate hikes beyond September, however."

"In a similar vein the ECB’s Radev made hawkish comments yesterday, suggesting that the neutral rate is “probably around 2.50%” and that the ECB may eventually be required to raise rates into restrictive territory."

"We maintain our view that the ECB will raise rates by 25bp at its 10 September meeting to 2.50%. In the near term, market pricing for the ECB by December 2026 is driven largely by the price of Brent crude oil, as we continue to focus on US-Iran headlines."

"However, there are clear risks that a December rate hike could occur should the price of Dutch TTF natural gas rise further. The bulk of the pass-through of moves in the price of Brent crude oil is largely contemporaneous and occurs via the vehicle fuel component within the HICP basket."

"However, the pass-through of moves in the price of Dutch TTF natural gas is more lagged and gradual, resulting in more persistent and broader inflationary pressures."

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

• Canada’s economy expands by 0.8% in the second quarter, accelerating sharply from the 0.1% growth recorded in the Q1.
• Annualized growth reaches 3.3%, slightly below market expectations of 3.4%.
• Economic activity rises by 0.3% in June, beating expectations for a slowdown to 0.2%.

Canada’s Gross Domestic Product (GDP) expanded by 0.8% QoQ in the second quarter, according to data released by Statistics Canada on Friday. The economy accelerated significantly from the 0.1% growth recorded in the first quarter, which was revised higher from an initial estimate of 0%.

On an annualized basis, Canadian GDP grew 3.3% in the second quarter, up from the upwardly revised 0.3% increase in the previous quarter but slightly below market expectations of 3.4%.

The monthly figures also provide an encouraging signal. GDP rose by 0.3% MoM in June, maintaining May's pace and exceeding expectations for a slowdown to 0.2%.

Statistics Canada reports that second-quarter growth was driven by stronger exports, household spending and business capital investment. Exports increased by 3.6%, marking their strongest quarterly rise since the first quarter of 2023, while household consumption expenditure advanced by 0.8%.

Business investment also strengthened during the quarter, supported by machinery and equipment as well as engineering structures. Meanwhile, real GDP per capita increased by 1%, as Canada's population declined for a third consecutive quarter.

Market reaction

USD/CAD remains broadly stable on Friday, trading around 1.3855 at the time of writing. The pair shows a limited reaction to the Canadian growth data, as investors remain cautious ahead of Federal Reserve (Fed) Chair Kevin Warsh’s speech at Jackson Hole later in the day.