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BNY’s Geoff Yu highlights that weak Japanese Gross Domestic Product (GDP) data and rising JGB yields are undermining confidence in the Bank of Japan’s ability to sustain a stronger Yen. USD/JPY is trading above 159.00 after giving back intervention gains, while iFlow data show persistent JPY outflows, though selling has recently eased as positioning turns underheld again.

Yen slides as yields test credibility

"Japan’s Q2 preliminary GDP data has again cast doubt on the Bank of Japan’s (BoJ) ability to hike rates, even though markets see such a move as necessary for the Japanese authorities to have any chance of success in the JPY’s defense."

"The overnight weakness in the JGB market also hints at significant concerns over policy credibility."

"Based on our flow figures, the market remains skeptical of success and has used the opportunity to sell JPY, both on an aggregate basis and against the USD."

"Based on flows since July 30 – the first day of the intervention – JPY’s daily average sales magnitude is 0.86, which is above the 0.79 daily average for USD/JPY on a standalone basis."

"However, the past week has seen selling gradually ease, especially as our data highlight the JPY is now underheld again for the first time since end-2024, albeit current holdings levels are extremely noisy."

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

• The Canadian Dollar strengthens as inflation accelerates and the Greenback weakens.
• Markets expect the Bank of Canada to keep interest rates unchanged at 2.25% in September.
• Falling expectations for a September Fed rate hike keep the US Dollar on the defensive.

USD/CAD falls to its lowest level since June 3 on Monday as the US Dollar (USD) stays under pressure, while hotter-than-expected Canadian inflation data provided additional support to the Canadian Dollar (CAD). At the time of writing, the pair trades around 1.3852.

Canada’s Consumer Price Index (CPI) rose 3% YoY in July, above the 2.9% market forecast and up from 2.8% previously. On a monthly basis, CPI increased 0.5%, matching expectations and reversing the previous month's 0.4% decline.

Underlying inflation also picked up. The Bank of Canada’s (BoC) core CPI measure rose 2.3% YoY, up from 2.1%, while the monthly reading increased 0.2% following a 0.1% rise previously.

Statistics Canada said higher prices for gasoline and travel tours contributed to the acceleration in headline inflation. The agency added that “the conflict in the Middle East, including the blockade of the Strait of Hormuz,” placed upward pressure on fuel prices.

Despite the rise in headline inflation, the BoC’s preferred core measures held close to its 2% target, suggesting that the latest data are unlikely to change the central bank’s near-term policy outlook. The BoC will announce its next monetary policy decision on September 2 and is widely expected to keep its interest rate unchanged at 2.25%.

Meanwhile, the US Dollar stays on the back foot as traders dial back Federal Reserve (Fed) rate hike bets after recent US economic data pointed to weaker labour demand, softer consumer spending and easing inflation pressure.

According to the CME FedWatch tool, markets now assign around a 70% probability that the Fed will leave rates unchanged next month. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.45 after touching 99.30, its lowest level since June 5.

Elsewhere, developments in the Middle East stay in focus as shipping through the Strait of Hormuz remains heavily restricted, keeping Oil prices elevated and providing a tailwind for the commodity-linked Loonie.

A senior Iranian official told Reuters that Tehran could raise tensions in the Strait of Hormuz and across the wider region if diplomacy fails. The official added that Tehran has decided to shift its policy from a defensive stance to a “fully offensive” one.

• EUR/CAD advances to around 1.6070 despite stronger-than-expected Canadian inflation data.
• Canada’s headline inflation accelerated to 3% YoY in July, up from 2.8% in June.
• The Euro remains supported by expectations of another interest-rate hike in the Eurozone.

EUR/CAD edges higher on Monday, trading around 1.6070 at the time of writing, up 0.11% on the day. The pair maintains a positive bias despite a stronger-than-expected acceleration in Canadian inflation, which provides some support to the Canadian Dollar (CAD).

Canada’s Consumer Price Index (CPI) rose 3% YoY in July, following a 2.8% increase in June and exceeding market expectations. On a monthly basis, consumer prices increased by 0.5%.

The Bank of Canada’s (BoC) core inflation measure, which excludes more volatile components such as food and energy, rose 2.3% YoY and 0.2% MoM. The BoC’s other preferred inflation measures also point to a modest strengthening of price pressures. Common CPI accelerated to 2.7% from 2.6% previously, while Trimmed CPI rose to 1.9% from 1.8%, and Median CPI increased to 2% from 1.9%.

According to the released data, higher gasoline and travel tour prices contributed to the acceleration in headline inflation in July, while slower growth in prices for food purchased from stores limited the increase.

These figures could prompt investors to reassess the BoC’s monetary policy outlook, as persistent price pressures reduce the central bank’s room to adopt a more accommodative stance.

However, the Canadian Dollar fails to gain a lasting advantage over the Euro (EUR). The shared currency benefits from growing investor confidence that the European Central Bank (ECB) could tighten monetary policy further, with inflation remaining above the institution’s 2% target.

The latest Eurozone Gross Domestic Product (GDP) and employment data reinforce this outlook. The economy returned to growth in the second quarter after stagnating in the previous quarter, while employment continued to expand at a moderate pace. These figures therefore keep expectations alive for a potential 25-basis-point interest-rate hike from the ECB at its September meeting.

The EUR/CAD advance therefore suggests that the support provided to the Canadian Dollar by the upside inflation surprise remains insufficient, for now, to offset expectations of tighter monetary policy in the Eurozone.

ECB tightening path seen extending as Nordea shifts to quarterly hikes

Analysts at Nordea note that “the ECB’s message at the July meeting was still in line with further rate hikes to come,” and they “continue to expect three more 25bp increases, taking the deposit rate to 3%.” However, they explain that they “revised the expected path of these hikes last month from consecutive to quarterly moves,” with their “updated baseline” now assuming “25bp rate hikes in September, December and March 2027.”

Nordea highlights that geopolitical developments could materially alter this trajectory: “A quick and durable peace in the Middle East could reduce the pressure on the ECB to hike further, while a more notable escalation and longer-lasting disruption to energy markets could lead to faster and potentially more rate increases.” Even under the softer baseline, the bank argues that “even with a slower ECB hiking pace, we still see room especially for longer bond yields to climb, supported by ample bond supply, Eurosystem reductions in bond holdings and higher inflation-risk premia.”

Standard Chartered economists Hunter Chan and Shuang Ding note that China’s July real activity data showed weaker momentum, with estimated monthly Gross Domestic Product (GDP) growth dropping below 4.3% year-on-year. They highlight a divergence between strong supply and weak domestic demand, as well as relatively strong external demand. They expect fiscal policy to take the lead in H2, with faster budget implementation and continued accommodative monetary policy.

Growth slows as policy support expected

"China’s July real activity growth slowed more than the market expected. We estimate that monthly GDP may have dropped below 4.3% y/y in July."

"Overall, the economy continued to show diverging performance between strong supply and weak demand, and relatively strong external demand and weak domestic demand."

"The July Politburo meeting confirms our view that policy support in H2 will focus on existing policies."

"Broad fiscal spending is likely to accelerate from a decline in H1 on faster budget implementation, boosting investment, in our view."

"Monetary policy will likely continue to keep liquidity ample. We maintain our call for a 25bps reserve requirement ratio (RRR) cut in Q3."

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

• NZD/USD rises to its highest level since early June, trading around 0.5915.
• China’s Industrial Production and Retail Sales disappoint in July, pointing to fragile economic growth.
• Expectations of a more accommodative Federal Reserve policy keep the US Dollar under pressure.

NZD/USD extends its advance on Monday and trades around 0.5915 at the time of writing, up 0.37% on the day. The pair reaches its highest level since early June, mainly supported by broad-based weakness in the US Dollar (USD), while the New Zealand Dollar (NZD) shrugs off disappointing Chinese economic data.

The Kiwi remains closely tied to the outlook for the Chinese economy, as China is New Zealand’s largest trading partner. However, data released on Monday shows fresh signs of weakness in the world’s second-largest economy.

China’s Industrial Production rose 4.5% YoY in July, compared with a 5.3% increase in June and below the 5% growth expected by markets. Retail Sales also slowed to 0.6% YoY, following 1% previously and falling well short of the 1.5% increase anticipated. These figures reinforce concerns about the strength of domestic demand and China’s growth prospects in the third quarter.

The New Zealand Dollar’s limited reaction to the data, however, suggests that US Dollar dynamics remain the main driver of NZD/USD on Monday. The Greenback remains under pressure after a series of US economic releases prompted investors to scale back expectations regarding the path of interest rates.

Inflation and consumption data released in the United States (US) last week are fueling expectations of a more accommodative stance from the Federal Reserve (Fed). Easing inflationary pressures, combined with a 0.6% decline in US Retail Sales in July, weaken the case for further monetary tightening and weigh on the US Dollar.

The New Zealand Dollar also benefits from the contrast with the Reserve Bank of New Zealand (RBNZ), whose rhetoric remains relatively firm regarding inflation risks and the need to maintain restrictive monetary conditions.

Caution remains warranted, however, amid geopolitical tensions in the Middle East. A fresh escalation between the United States and Iran, as well as disruptions around the Strait of Hormuz, could revive demand for safe-haven assets and provide some support to the US Dollar. Investors will also watch Wednesday’s release of the minutes from the latest Federal Open Market Committee (FOMC) meeting for further clues about the US monetary policy outlook.

RBNZ seen on hold as softer New Zealand inflation offsets Middle East risks

Analysts at Commerzbank argue that the latest data make a back-to-back rate hike by the RBNZ unlikely at its meeting in about two weeks. “In about two weeks, the Reserve Bank of New Zealand will hold its next monetary policy meeting, and based on the inflation indicators released this morning, it seems unlikely that it will raise interest rates for a second consecutive time following the July hike,” they note.

They point out that, although “full inflation figures are released only once a quarter in New Zealand, Stats NZ publishes a Selected Price Index every month for about half of all prices, which typically reflects the trend in the full inflation figures very well.” This monthly gauge “fell to 3.5% year-over-year in July, down from 4.9% in June.” Moreover, Commerzbank highlights that “if we exclude the sharp rise in gasoline and diesel prices, the rate was actually only 2.2% in July, down from 2.8% in June.” While “global prices for oil and petroleum products were lower in July than in August” and “a slight uptick in August is certainly to be expected” given “the collapse of the ceasefire and the renewed blockade in the Strait of Hormuz,” the bank says “the decline in the core rate in particular should be a source of satisfaction for the central bank.”

On the activity side, Commerzbank sees some tentative resilience. “Positive figures for monthly aggregate credit and debit card sales, on the other hand, give reason to be confident that the economy will not suffer too severe a setback,” they write. After core card sales “had slowed sharply in June and were up only 0.4% year-over-year, they rose again by 3.5% in July.” “The overall rate also improved again, rising from 1.3% in the previous month to 3.5%.” However, the bank cautions that “these are nominal figures” and that, once “monthly inflation is factored in as an indicator, this shows that, in real terms, retail sales are still merely stagnating.”

“Overall, we therefore expect the central bank to use the decline in inflation as an opportunity to leave interest rates unchanged in September,” Commerzbank concludes. However, “in light of the renewed escalation in the Middle East, it will adopt a hawkish tone to keep all options open.” In their view, “this should provide some support for the kiwi in the coming weeks,” even as “the weak economic environment, however, is likely to continue weighing on the currency over the coming months.”

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5913, holding a constructive bullish bias as it stays above the 100-period simple moving average (SMA) at 0.5873 and the 200-period SMA at 0.5876. The pair also trades over nearby horizontal support at 0.5910 and 0.5900, while the Relative Strength Index (RSI) eases to around 62, suggesting positive but moderating upside momentum after recent overbought readings.

On the topside, immediate resistance is located at the recent horizontal cap near 0.5926; a clear break higher would open the way for a continuation of the short-term advance. On the downside, initial support is seen at 0.5910, followed by 0.5900 and 0.5885, with the 200-period and 100-period SMAs at 0.5876 and 0.5873, respectively, reinforcing a broader demand zone on deeper pullbacks.

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

DBS Group Research economist Ma Tieying revises Taiwan’s 2026 GDP growth forecast up to 11.6% from 9.4% and 2027 to 5.6% from 4.5%, noting that growth will exceed 10% and mark the strongest pace in more than three decades. The report highlights narrowing K-shaped divergence, balanced AI-driven prospects, and expects a gradual transition to steadier growth alongside a modest rate hike in late 4Q.

DBS upgrades Taiwan growth outlook

"We further revise up our 2026 GDP growth forecast to 11.6% from 9.4%—our third upgrade this year—and raise our 2027 forecast to 5.6% from 4.5%. Growth in 2026 would be the highest in more than three decades and only the second time since 2010 that Taiwan has achieved double-digit growth."

"We continue to expect AI-driven growth to transition from a supercharged pace toward a steady trajectory in 2H26-2027. The AI outlook remains balanced between structural optimism, driven by continued technological innovation, and cyclical caution, stemming from the external financing needs and electricity and regulatory constraints facing US hyperscalers."

"We expect the K-shaped pattern to continue narrowing through 2H26-2027. Domestic demand should receive further support from cumulative and sizeable wealth effects from the stock market, stabilization in the property market, and steady wage and employment conditions."

"We maintain our forecast for a 12.5bp rate hike in 4Q, bringing the policy discount rate to 2.125%. The central bank is expected to follow the DGBAS in upgrading its GDP forecasts at the September meeting."

"An immediate rate hike remains unlikely, as inflation pressure is not yet compelling and the November local elections are approaching. December is likely to be a more appropriate timing for a rate hike, as inflation would have remained above 2% for more than six months by then, while inflation expectations may be starting to rise and require anchoring."

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

Canada’s inflation picked up pace in July, with the headline Consumer Price Index (CPI) rising 3% from a year earlier, above market expectations and up from the 2.8% increase recorded in June. On a monthly basis, prices rose 0.5%.

Meanwhile, the Bank of Canada’s (BoC) core measure, which excludes more volatile components such as food and energy, rose 2.3% over the past year and increased by 0.2% compared with the previous month.

Looking at the BoC’s other key inflation gauges, Common CPI came in at 2.7% (from 2.6%), Trimmed CPI at 1.9% (from 1.8%), and Median CPI at 2% (from 1.9%). Together, they show that the prior impasse in price pressures has now resurfaced.

According to the press release, "On a year-over-year basis, higher prices for gasoline and travel tours in July contributed to the acceleration in the headline CPI. Moderating the faster price growth was a deceleration in the food purchased from stores index. The all-items CPI excluding gasoline rose 2.2% for the third consecutive month.”

Market reaction

The Canadian Dollar (CAD) builds on recent gains and motivates USD/CAD to challenge its key 200-day SMA in the mid-1.3800s. Spot is down for the third consecutive day, revisiting levels last seen in early June.

This section below was published as a preview of the Canadian inflation report at 11:00 GMT.

• Canadian inflation is expected to rise by 2.9% YoY in July.
• The core CPI is still seen well above the BoC’s 2% target.
• The Canadian Dollar has been steadily appreciating vs the US Dollar.

Canada’s July Consumer Price Index (CPI) figures will be the focus of attention when published on Monday. Indeed, Statistics Canada data will provide markets with an update on price pressures following the Bank of Canada’s (BoC) July 15 gathering, when officials kept the interest rate steady at 2.25%, broadly in line with the consensus among analysts.

This time, economists expect the headline CPI to rise by 2.9% in the year to July, still above the central bank’s goal and up from June’s 2.8% annual increase. On a monthly basis, prices are expected to rise by 0.7%. The bank will also closely monitor its core measure (which strips food and energy costs), expected to rise by 2.2%, up from the 2.1% YoY gain recorded in the previous month.

In the current context of heightened geopolitical volatility, crude Oil dynamics are likely to keep inflationary pressures anything but abated. Adding to this scenario, we should not forget the impact of US tariffs on domestic consumer prices. 

Still around data, the bank’s preferred gauges, CPI-Common, Trimmed Mean, and Median, receded in June to 2.6%, 1.8%, and 1.9%, respectively.

What can we expect from Canada’s inflation rate?

Inflation lost some momentum in June, although market participants remain somewhat sceptical about the continuation of this trend into July.

At its latest gathering, the BoC left its policy rate unchanged at 2.25%. While the reduced annual economic growth projection and current economic slack argue against extra tightening, the combination of higher anticipated inflation and confidence in the recent recovery, plus Governor Tiff Macklem’s specific caution against successive rises, means the BoC is attentive to continued oil-driven price pressures.

So far, market participants expect just over 18 basis points of tightening by year-end.

When is the Canada CPI data due, and how could it affect USD/CAD?

Markets will fully focus on Monday at 12:30 GMT, when Statistics Canada publishes July’s inflation prints. If inflation reverses the recent decline, bets on further rate hikes should likely increase, providing fresh legs for the Canadian Dollar (CAD).

Pablo Piovano, Senior Analyst at FXStreet, notes that USD/CAD has been in a steady downtrend since late July, almost entirely tracking developments in the Middle East conflicts and their impact on the Greenback.

Piovano points out that USD/CAD has recently broken below the 1.3900 support level for the first time since early June. In doing so, it has also left behind its provisional 100-day SMA in the 1.3920 region. Further losses carry the potential to confront the critical 200-day SMA in the mid-1.3800s.

If bulls regain control, the interim 55-day SMA around 1.4060 becomes the immediate target, followed by the August ceiling at 1.4080 (August 4) and the weekly peak at 1.4129 (July 28).

“Momentum could prompt some technical correction,” he adds, noting that the Relative Strength Index (RSI) is entering the oversold threshold near 29, while the Average Directional Index (ADX) around 30 suggests a firm trend.

TD Securities economists Oscar Munoz and Eli Nir expect US output growth to move sideways in 2025 as the lingering Oil shock and Iran conflict create stagflationary risks, keeping the Fed on hold. They see GDP growth slightly below trend in 2026, with 2.1% Q4/Q4, unemployment near 4.3%, and only gradual disinflation resuming in 2027.

Sideways growth with stagflationary risks

"We expect output growth to move sideways this year, reflecting the lingering impact of the oil shock. The Iran conflict presents stagflationary risks, which we expect will keep the Fed on hold for the entire year. AI and high-income consumers have supported underlying growth."

"GDP growth will likely remain slightly below trend in 2026, ending with 2.1% Q4/Q4. Stable growth should result in a still-low unemployment rate of 4.3% by Q4 2026. The labor market has signaled stabilization, and while we expect that to continue, rising input costs from the oil shock create further uncertainty that could weigh on hiring."

"We assign 25% odds to a US recession over the next year."

"With supply chains stressed, we do not see substantial disinflation as feasible this year. We expect core CPI inflation to be 2.6% y/y in Q4 2026, ending the year higher than it started. The numbers are similarly high in core PCE terms (see table below)."

"Most of the impact of higher oil prices will filter into headline inflation. We look for gradual disinflation to resume in 2027."

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