Forex News
- US private employers added an average of 9.5K jobs per week in the four weeks ending August 1.
- Hiring picks up for the first time in seven weeks, following several weeks of weakening momentum.
- The US Dollar shows little reaction to the latest labor market figures on Tuesday.
Private-sector hiring in the United States (US) shows tentative signs of improvement in early August. According to the NER Pulse, the weekly companion to the ADP National Employment Report, private employers added an average of 9.5K jobs per week in the four weeks ending August 1.
The latest reading marks an improvement from the previous week's average of 8.25K and represents the first increase in hiring in seven weeks. The rebound offers some relief after several consecutive weeks of weakening employment momentum, although the pace of job creation remains relatively subdued.
Market reaction
The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, remains directionless on Tuesday. The index edges 0.07% higher on the day and trades around 99.65 at the time of writing.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Brown Brothers Harriman’s (BBH) Elias Haddad notes Brent crude has rallied above $91 as the US–Iran Strait of Hormuz standoff persists. Haddad argues crude Oil is driving the war narrative and expects price swings to steer escalation risks. BBH projects Brent staying broadly within a $70–$100 range, with higher Oil also pressuring bond yields and fiscal dynamics.
Crude drives war narrative and ranges
"Brent crude rallied to $91.85 a barrel, its highest level in more than three weeks, as the US-Iran Strait of Hormuz standoff drags on. We continue to see crude oil prices driving the war narrative, with price swings likely to dictate the pace of escalation and de-escalation. That should keep Brent within a broad $70 to $100 range."
"In parrel, the renewed upswing in crude oil price is pushing bond yields higher and worsening already fragile fiscal dynamics. Equity markets are down and USD recovered yesterday’s loss. The risk of further dovish Fed repricing will keep USD rebounds shallow and short-lived."
"This has led some to argue that the dollar is increasingly vulnerable to an equity market correction, as foreign investors unwind their US stock holdings. We disagree. A broad stock market sell-off would simply encourage foreign investors to rotate back into safe-haven Treasuries, underpinning the dollar’s defensive appeal."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD struggles for direction as a firmer US Dollar and elevated Oil prices pull the pair in opposite directions.
- The US Dollar rebounds from two-month lows as US Treasury yields climb.
- Energy-driven inflation risks keep the possibility of a Fed rate hike later this year alive.
USD/CAD trades little changed on Tuesday as rising long-term US Treasury yields lift the US Dollar (USD), while elevated Oil prices underpin the commodity-linked Canadian Dollar (CAD). At the time of writing, the pair trades around 1.3874, near levels last seen in early June.
The benchmark 10-year US Treasury yield has climbed toward 4.75%, while the 30-year yield has risen above 5.30%, its highest level since 2007. Higher yields help the US Dollar stage a modest recovery from two-month lows touched on Monday.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.67, up 0.10% on the day. However, Oil price movements are likely to remain the main near-term driver of USD/CAD.
Analysts at Commerzbank note that “the performance of the Canadian dollar has understandably been closely linked to the oil price in recent months.” They argue that this dynamic is unlikely to fade quickly and that “this trend is likely to continue unless the Strait of Hormuz is kept open on a sustained basis.”
West Texas Intermediate (WTI) crude Oil trades around $84.25 per barrel after gaining 3.15% on Monday, holding near its highest level in over two weeks.
Higher Oil prices keep inflation concerns in the spotlight. Data released on Monday showed that Canada’s Consumer Price Index (CPI) accelerated to 3.0% YoY in July from 2.8% in June. Even so, the data did not materially change market expectations for the Bank of Canada (BoC).
According to economists at TD Securities, the latest Canada CPI report showed that "core inflation measures looked a little less benign than prior months." In their view, this backdrop means "the Bank of Canada can stay patient as it waits for more clarity around the growth outlook beyond Q2," and TD Securities reiterates that they "continue to look for the Bank to stay on hold through 2026."
On the US side, recent weaker economic data have prompted traders to scale back expectations of a Federal Reserve (Fed) rate hike at the September meeting. However, energy-driven inflation risks keep the possibility of a rate increase later this year alive.
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.
Commerzbank’s Norman Liebke argues that European gas storage will depend on higher LNG imports over winter, as current inflows of 8 bcm per month would see storages trend toward 0% by March. He considers 10 bcm realistic, but warns that delayed import recovery, strong Asian demand and missing Qatari LNG raise upside risks for European gas and electricity prices.
Import scenarios and power price risk
"If this level were maintained through spring, gas storage levels would reach just around 70% in October and head toward 0% by March."
"A middle ground would be 10 bcm, which would leave gas storage levels at about 16% shortly before the start of the replenishment phase."
"We consider 10 bcm to be quite realistic, while 12 bcm seems somewhat too high, as demand for US LNG from Asian countries is likely to remain high even if the Strait of Hormuz remains open on a sustained basis."
"This increases the pressure to import even more in the coming months, thereby raising the price risk."
"Ultimately, this would also further increase upward pressure on European electricity prices."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities strategists see Gold supported by doubts over the Federal Reserve (Fed) but with limited near-term upside. They argue that potential oil-driven inflation could keep Gold confined to a defined trading range into early 2027, before easing inflation, a weaker USD Dollar (USD) and lower carry costs drive prices materially higher later that year.
Fed path and oil risks steer gold
"While gold, silver, and PGMs have benefited significantly from the narrative that the Fed will not raise rates this year due to political worries, a willingness to look through an energy price shock, and a lackluster labor market, we see limited additional upside from current levels for now."
"With oil supply still at risk due to ongoing hostilities in the Persian Gulf, energy prices could still rise enough to alter front-end rate expectations this year."
"The bar for another rate hike remains low should oil prices spike again and inflation concerns re-emerge."
"Such a development would likely force gold traders to reprice policy expectations to reflect higher Fed funds rates this year and next."
"The risk of higher rates over this period should keep gold trading in a $4,200-4,500/oz range into early 2027."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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