Forex News

The Canadian Dollar (CAD) is facing an upward correction, with the USD/CAD currency pair sliding below the critical 1.4100 mark. This retreat comes after lower-than-expected US CPI data and as the Bank of Canada (BoC) is widely anticipated to hold its policy rate steady at 2.25% for the sixth consecutive meeting. 

Beneath the surface of this rate pause lies a quite resilient domestic economy, emerging geopolitical triggers in the Middle East, and shifting technical dynamics that could soon test key support levels for the pair.

Economic resilience keeps a year-end rate hike on the table

Analysts at Societe Generale expect the Bank of Canada (BoC) to keep rates on hold on Wednesday after recent data showed the country’s economic outlook has strengthened notably.

The Canadian economy rebounded in April and labor market conditions have improved. While falling gasoline prices may pull headline inflation below 3.0%, core measures remain anchored near the BoC’s 2.0% target. This combination of growth and still-high core inflation keeps the door open for further tightening.

Labor market conditions have improved of late, reflected in the decline of the unemployment rate by 0.4pp since April to 6.5% in June, the lower end of the BoC forecast range. Market pricing suggests a 25bp hike before year-end cannot be dismissed.

Oil, geopolitics, and USMCA trade risks dictate CAD momentum

External forces are heavily influencing the Canadian Dollar. ING highlights that while the BoC's Business Outlook Survey showed elevated inflation expectations, those surveys were conducted in May, prior to the reopening of the crucial Strait of Hormuz.

Recent re-escalations in the Middle East and higher Oil prices have provided a natural buffer for the Oil-sensitive Loonie. However, any structural upside for the Canadian currency remains capped by lingering trade concerns surrounding the United States-Mexico-Canada Agreement (USMCA).

We expect few changes in the policy tone by the BoC at this meeting, leaving CAD front-end rates primarily driven by developments in the Gulf. CAD should enjoy more short-term momentum if oil prices stay supported and the BoC doesn’t surprise on the dovish side.

Technical levels: Can USD/CAD break below 1.4000?

From a technical perspective, USD/CAD’s failure to consolidate above its previous range boundary of 1.4130 has triggered a breakdown. Societe Generale notes that gains were capped near interim resistance at 1.4250, leaving the pair vulnerable to further short-covering.

The immediate downside target is the 50-day moving average hovering near 1.3970, followed by stronger support at 1.3850. However, ING cautions that clearing the psychologically significant 1.4000 level permanently will require clear, dovish policy signals from the US Federal Reserve.

Banks anticipate tight trading range with downward bias

The banks project a near-term consolidation for the USD/CAD pair with a mild downward bias, targeting the 1.3970-1.4000 support corridor. Societe Generale expects the current technical pullback to extend lower in the absence of a bullish US PPI inflation surprise.

Meanwhile, ING maintains that while strong Oil prices and a hawkish-leaning BoC pause will keep the Canadian Dollar structurally supported, trade-related USMCA headwinds and a resilient US Dollar will prevent the pair from embarking on a deeper, sustained decline below 1.4000.

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

• . Gold ticks lower on Wednesday and remains trapped within a tight range above $4,000.
• Escalating tensions in Iran and high Oil prices are keeping precious metals weighed.
• The US Dollar lost ground after US CPI cooled expectations of immediate Fed rate hikes.

Gold (XAU/USD) edges lower on “inside trading” on Wednesday, with price action contained within Tuesday’s range, as the pair keeps looking for direction above the $4,000 level. Rising tensions in Iran and high Oil prices have offset the positive impact from the soft US Consumer Price Index (CPI) data.

US data released on Tuesday revealed that inflationary pressures eased beyond expectations in June. Yearly CPI slowed down to 3.5% from 4.2% in May, well below the 3.8% market consensus, and monthly inflation contracted 0.4%, its largest decline in nearly six years. These figures triggered a significant repricing of Federal Reserve (Fed) rate hikes and sent the USD lower across the board

Precious metals, however, have failed to capitalise on the US Dollar’s weakness amid escalating hostilities between the US and Iran. Threats of further attacks and the closure of more energy routes are underpinning OIil prices near one-month highs, fuelling expectations of higher inflationary pressures and global monetary tightening.

Technical Analysis: Bearish momentum fades with bulls still subdued

XAU/USD trades at $4,027, still capped below the downward trend-line barrier yet with the Relative Strength Index (14) on the daily chart showing a bullish divergence as it reaches the neutral territory in the 40 area. The Moving Average Convergence Divergence (MACD) remains in positive territory yet at levels suggesting that bullish attempts remain frail.

Gold bulls should break the mentioned trendline, now around $4,100 and the July 7 high, in the $4,200 area to confirm a trend shift and gain confidence to pursue a deeper correction. On the downside, the precious metal has a cluster of supports between Thursday's low in the $4,020 area and the late October 2025 lows near $3,885.

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

MUFG’s Derek Halpenny reports that the Canadian Dollar (CAD) has benefited from weaker United States (US) Consumer Price Index (CPI) and higher Oil prices, with spreads pointing to modest further gains versus the US Dollar (USD). However, he expects the Bank of Canada (BoC) to remain on hold, stress a sizeable output gap and mixed data, and warns that current rates pricing leaves CAD risks skewed to the downside.

Upside capped as BoC stays patient

"The Norwegian krone, the Canadian dollar and the Australian dollar are performing best behind the New Zealand dollar within G10 since the re-escalation of the conflict with the rebound in energy prices underlining the terms of trade driver of FX performance once again. The same three currencies are in the top four behind the pound covering the period since the conflict first began at the end of February. But from a relative monetary policy stance the Canadian dollar gained yesterday like the rest of G10 versus the US dollar and the 2-year nominal US-CA swap spread points to scope for some further modest gains."

"As stated above, the CPI print has certainly weakened the support for the dollar and CAD can benefit from that as well. For CAD this can be reinforced by the upturn in crude oil prices."

"However, the macro backdrop certainly points to limits to CAD gains from crude oil and today the BoC monetary policy decision should highlight the scope for patience from the BoC given the mixed macro backdrop and weaker inflation. The need for a hawkish message is far less from Governor Macklem than from Fed Chair Warsh yesterday (notwithstanding the better US CPI data)."

"With close to 20bps of tightening priced by the end of the year the risks appeared skewed to another cautious communication highlighting the scope for remaining on hold that may disappoint current rates market pricing. Nominal and real spreads, while recently moving in favour of lower USD/CAD are still at levels that point to downside risks for CAD."

"The crude oil / Brent correlation is not particularly stable and with the BoC set to remain sidelined, CAD risks are skewed to the downside given the rates pricing (80% priced for hike by year-end)."

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

TD Securities projects UK GDP to grow 0.1% month-on-month in May, led by services and strong retail sales, while manufacturing and industrial output remain under pressure from Middle East-related headwinds and higher input costs. Governor Bailey’s Mansion House speech emphasized inflation returning to target more slowly, weak productivity, and a focus on stability, with little indication of support for near-term rate hikes.

GDP outlook and monetary policy signals

"UK GDP likely scraped out modest growth in May, which we see at 0.1% m/m (mkt: 0.0%; prior: -0.1%). We expect this to be led by the services sector, which should benefit from the strong retail sales recorded during the month and the effect of mean reversion in some major components, bringing the May growth to 0.1% m/m (mkt: 0.1%; prior: -0.2%)."

"Offsetting this, Manufacturing and Industrial Production likely remained under pressure as the peak of the Middle East crisis weighed on activity and higher input costs dampened output."

"Should this materialise, it would be in line with our forecast of 0.2% q/q and slightly above BoE's most recent projections of 0.1% q/q for Q2."

"Similar to his previous speeches, Bailey argued that UK inflation would likely have returned to the 2% target by now were it not for recent energy-related supply shocks, and remains confident that it will do so, albeit more slowly than previously expected."

"Ultimately, though the speech is more long-term outlook focused, there was little sense that he would be ready to vote for a hike in the upcoming meetings."

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

• EUR/USD gives away previous daily gains and retreats to the 1.1425 area.
• Eurozone Industrial Production contracted against expectations in June.
• The US Dollar had been on its back foot in previous sessions, weighed down by softer-than-expected US inflation figures.

The Euro (EUR) has given away previous gains against the US Dollar (USD) on Wednesday, with the EUR/USD pair retreating to levels just above 1.1420 from session highs near 1.1450. A negative surprise on the Eurozone's Industrial Production figures has hit the Euro, which had been posting moderate gains, favoured by a mild US Dollar weakness.

Data released by Eurostat revealed that Eurozone Industrial Production contracted 0.2% in May, against market expectations of a 0.2% rise, and following an upwardly revised 0.3% gain in April. Year-on-year, factory output in the countries sharing the Euro dropped 1.2%, following a 0.4% gain in April, and more than twice the 0.5% decline anticipated by the market consensus.

US CPI data cools Fed tightening hopes

The US Dollar took a hit on Tuesday as June’s US Consumer Price Index (CPI) report revealed inflation slowed to a 3.5% year-on-year pace, down from 4.2% in May and well below the consensus of 3.8%. Monthly inflation contracted 0.4%, its weakest reading in nearly six years.

These figures give the Federal Reserve (Fed) some margin to keep interest rates on hold at its July meeting and have prompted investors to dial down expectations of Fed rate hikes in the coming months. The CME FedWatch Tool shows a 60% chance of a hike in September, down from 75% before the CPI release.

Fed Chairman Kevin Warsh showed a distinct hawkish tone at its first congressional testimony, vowing a “resolute commitment to restore price stability” and defending the central bank’s independence from political pressures. His comments, however, failed to lift the US Dollar.

Meanwhile, the conflict in the Middle East continues to deteriorate. The US has closed the Strait of Hormuz for Iranian vessels, and US President Donald Trump threatened to target civilian infrastructure, like bridges and power plants. Tehran threatened to close other strategic energy routes. Market sentiment remains weak, with Oil prices pinned near monthly highs. All in all not the best scenario for a strong Euro recovery.

DBS Group Research economist Samuel Tse and Senior Rates Strategist Eugene Leow analyse USD rates after softer June CPI data. They note the US Treasuries curve bull steepened as headline and core CPI surprised to the downside, with energy and some core services prices falling. Despite this, they argue resilient US economic activity, strong equities and higher Oil mean inflation concerns and Fed tightening expectations are only temporarily eased.

Treasuries bull steepen on soft CPI

"The US Treasuries curve bull steepened amidst cool June CPI figures. Headline and core CPI came in at -0.4% MoM sa and 0.0% MoM sa respectively, both meaningfully below consensus estimates (-0.1% MoM sa and 0.2% MoM sa respectively). Nominal frontend yields were lofty (with 2Y yields pushing 4.3%) heading into the data release, and the market was caught wrong-footed at the benign prints."

"Unsurprisingly, the biggest drag on prices came from the 5.7% MoM decline in energy prices. We also note that prices for core services less shelter also dropped by 0.4% MoM, suggesting that price pressures are not widespread just yet. The biggest source of inflation was from the computer software and accessories component amidst the AI boom."

"We don’t think this CPI print changes the narrative for USD rates. Against a backdrop of resilient US economic activity, buoyant stock market and a resurgence in oil prices, we doubt inflation worries (and Fed tightening bets) would fade that quickly. Instead, we see think market participants would likely still be in pay-on-dip mode."

"That said, July is no longer live. Between a more subdued NFP print and cold CPI figures, bets on Fed tightening have been pushed towards the end of the year."

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

Silver prices (XAG/USD) fell on Wednesday, according to FXStreet data. Silver trades at $58.41 per troy ounce, down 0.46% from the $58.68 it cost on Tuesday.

Silver prices have decreased by 17.82% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 69.04 on Wednesday, broadly unchanged from 69.05 on Tuesday.

(An automation tool was used in creating this post.)

• Silver price falls to near $58.00 despite market participants dialing down Fed rate hike expectations.
• Both the US headline and core CPI growth cooled down in June.
• Higher oil prices will likely limit the upside in the Silver price.

Silver price (XAG/USD) is down 0.6% to near $58.00 during the European trading session on Wednesday. The white metal faces slight selling pressure despite traders scaling back hawkish Federal Reserve (Fed) bets, following the release of the United States (US) Consumer Price Index (CPI) data for June.

The CME FedWatch tool shows that the odds of the Fed raising interest rates in the policy meeting this month have eased to 16.6% from 41.7% recorded on Monday.

Theoretically, signs of easing hawkish Fed prospects bode well for non-yielding assets, such as Silver.

On Tuesday, the US CPI report showed that the headline and core inflation decelerated significantly to 3.5% and 2.6% year-on-year (YoY), respectively.

Meanwhile, higher oil prices due to renewed exchange of attacks between the United States (US) and Iran will likely keep the upside in the Silver price limited. Escalated energy prices have de-anchored global inflation projections, a scenario that forces central banks to tighten monetary conditions.

Going forward, investors will focus on the US Producer Price Index (PPI) data for June, which will be published at 12:30 GMT.