Forex News

Royal Bank of Canada (RBC) economist Claire Fan notes that February’s Canadian labour market data were weak, with employment falling and the unemployment rate rising to 6.7% as participation declined. She highlights that volatile monthly data are being distorted by slower population growth. Despite softer prints, Fan expects the macro backdrop to support hiring and sees the unemployment rate gradually moving lower later in 2026.

Soft data but improving outlook signaled

"February's Canadian labour market report was soft. Employment fell 84,000, adding to the 25,000 losses in January. The unemployment rate rose to 6.7% after dropping to 6.5% in January, and the labour force participation rate declined again, to its lowest level outside the pandemic since 1997."

"Monthly employment prints are volatile, and headline job growth remains partly distorted by sharply slower population and labour force growth, driven by retirements and government curbs on the share of non-permanent residents. In January and February combined, Canada's population grew just 12,500—well below the 103,000 increase in 2025 over the same months. "

"In the past, we have warned how soft employment growth could persist and mask improvements in underlying hiring demand better reflected in the unemployment rate. In February, the unemployment rate ticked higher to 6.7% but remains below the Q4 2025 average of 6.8%. Total hours worked fell 1.1% in February, leaving Q1 on average flat versus the prior quarter. "

"Looking ahead, the macro environment—particularly a stabilizing trade backdrop thanks to preserved CUSMA exemptions, healthy domestic consumer spending trends, and continuous monetary and fiscal support—should all support a recovery in hiring demand."

"We look through near-term volatility, and continue to expect gradual improvements to drive the unemployment rate lower through the remainder of the year."

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

• AUD/USD trims part of its weekly gains and retreats below 0.7050.
• Investors assess a series of mixed US economic releases, including PCE inflation and the GDP revision.
• Rising Oil prices and geopolitical tensions support the US Dollar and weigh on risk-sensitive currencies.

AUD/USD trades lower on Friday at around 0.7040 at the time of writing, down 0.46% on the day, after hitting a multi-year high at 0.7187 earlier in the week. The pullback comes as the US Dollar (USD) strengthens and risk sentiment deteriorates across financial markets.

The US Dollar finds support as investors digest a batch of economic data from the United States (US). Inflation, measured by the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge, eased slightly to 2.8% YoY in January from 2.9% in December, below market expectations. On a monthly basis, the index rose 0.3%, in line with forecasts. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, increased 3.1%YoY, matching analysts’ estimates.

Other data pointed to a softer economic backdrop. The US Gross Domestic Product (GDP) growth for the fourth quarter was sharply revised lower to 0.7% YoY from the initial estimate and market expectations of 1.4%.

Despite these mixed indicators, the Greenback remains supported by higher US Treasury yields and renewed inflation concerns linked to rising energy prices. The US Dollar Index (DXY) advances above the 100 level as traders reassess the outlook for US monetary policy.

Escalating geopolitical tensions in the Middle East, particularly around the Strait of Hormuz, have raised fears of potential supply disruptions in global energy markets. Brent Crude trades near $100 per barrel while West Texas Intermediate (WTI) holds close to $95, reinforcing expectations that inflationary pressures could persist.

Against this backdrop, markets have scaled back expectations for interest rate cuts by the Federal Reserve (Fed) this year. Analysts at MUFG estimate that every $10 increase in Oil prices could add around 0.2 percentage points to US inflation, potentially delaying the continuation of the Fed’s easing cycle.

In Australia, Consumer Inflation Expectations rose to 5.2% in March according to the Melbourne Institute survey, their highest level since July 2023. The increase reinforces speculation that the Reserve Bank of Australia (RBA) could raise its policy rate again, with markets now expecting a possible hike at the March 17 meeting. However, despite these tightening expectations in Australia, the stronger US Dollar and broader risk aversion continue to weigh on AUD/USD in the near term.

Nordea strategists Ole Håkon Eek-Nielsen and Jan von Gerich argue the Federal Reserve is unlikely to cut rates and could even face pressure to hike as a potential energy shock lifts inflation risks. They compare current conditions with the 1970s, highlight stagflation dangers, and see investors demanding higher yields, especially at the long end of the US bond curve.

Energy shock complicates Fed policy outlook

"We have for quite a while been arguing for no more cuts from the Fed. Seems like we could be right for the wrong reasons. Even if we still struggle to see much weakness in the US labour market, it is the potential energy crisis that is the most important driver right now."

"This situation could be challenging for today’s version of Fed; balancing higher unemployment with higher inflation is never easy. The cuts that Warsh has promised to deliver will probably be even harder. The lessons learned in the seventies will probably make quite a few FOMC-members argue for hikes, but given the potential for higher unemployment some might also draw the same conclusion as many did back then and try to induce as little pain as possible."

"In the seventies core inflation topped out above 13% and interest rates peaked at 17%. Neither we nor the market is implying such an outcome, but the risk of such an extreme is now higher than before and perhaps the probability should be seen as higher than what the market is pricing in."

"The stagflationary impulse this potentially is could also be met by stimulus from the government to ease the pain inflicted on consumers. The downturn it produces is likely to increase the, already too high, budget deficits in the US. It seems likely that bond investors will demand higher interest rates to meet record high supply and increasing inflation."

"We already see quite some pressure from the supply side in the bond markets and have for quite a while been arguing for the upside in long end bond yields."

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

ING’s Chris Turner argues USD/JPY is now firmly in intervention territory, with markets watching whether any action involves only Japanese authorities or a fully joint move with the Federal Reserve. He suggests unilateral or agent-based intervention would likely have only limited, short-lived impact while sustained downside in USD/JPY requires a reversal in global energy prices.

Yen vulnerable despite intervention talk

"USD/JPY is now firmly in intervention territory. If we do see intervention, the market will be looking out for whether it is just Japanese intervention, whether the Fed is selling USD/JPY just as an 'agent' for the Bank of Japan or whether this is a fully joint intervention with the Fed doing 'own account' intervention for the US Treasury."

"The first two options probably only have a limited and short-term negative impact on USD/JPY, while the third option might be longer lasting and tap into ideas that Washington is ready to fight the recent dollar strength. We felt a couple of weeks ago that one week USD/JPY traded volatility was too low at under 10%, and it could easily be marked through 12% as USD/JPY threatens 160."

"The problem for authorities in Tokyo and Washington, however, is that USD/JPY will not turn sustainably lower until energy prices reverse."

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

Nomura economists expect the Bank of England to keep rates on hold next week, highlighting that $100 Oil could add about 0.6 percentage points to UK CPI via fuel costs. They argue rising energy prices will lift inflation in several CPI components, justifying current policy, but still see two more BoE cuts in April and July toward a 3.25% terminal rate, with higher energy prices a risk to this timing.

BoE to hold now but cut later

"We take a look this week at the various ways rising energy prices pass-through into the UK’s CPI. In the first four stages – petrol (which we think itself will add 0.6pp to CPI inflation from $100 oil prices), energy bills, core goods and second round effects – the impact is decidedly positive, and this is what the BoE should respond to by holding rates next week. But if growth weakens there could be a longer-term drag on inflation."

"UK data have been mixed. The job market is slowing, as past policy restriction weighs on growth. Further monetary easing is needed with the BoE’s forecasts showing inflation at or below target from mid-year onwards."

"However, there are risks from sticky service prices and recent energy price rises. We see two more cuts (April/July) for a terminal rate close to neutral (3.25%). Further energy price increases could yet delay that profile."

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