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Canadian Dollar strengthens as US Dollar decline despite hawkish Fed outlook

  • USD/CAD loses ground as the US Dollar weakens despite rising expectations of later Fed rate hikes.
  • CME FedWatch tool indicates that markets are now pricing in an 83.1% probability of rate hikes by the end of December.
  • The Canadian Dollar struggles as easing US-Iran tensions cool the global oil market.

USD/CAD halts its winning streak that began on June 10, trading around 1.4230 during the Asian hours on Thursday. The currency pair depreciate as the US Dollar (USD) declines despite rising market expectations of Federal Reserve (Fed) interest rate hikes later this year.

Traders are positioning for tighter monetary policy after Federal Reserve Chairman Kevin Warsh signaled a firm focus on taming inflation, noting that the broader economy remains on a stable footing. Reflecting this hawkish shift, the CME FedWatch tool shows that markets are now pricing in an 83.1% probability of rate hikes by the end of December.

Traders focus now shifts to the upcoming US Personal Consumption Expenditures (PCE) data release, where headline inflation is expected to heat up to 4.1% YoY in May from April’s 3.8%, and core PCE is projected to edge higher to 3.4% YoY.

The commodity-linked Canadian Dollar (CAD) is struggling against its US counterpart as easing geopolitical tensions between the US and Iran cool the global oil market. Lower crude prices directly hit the Canadian economy, as Canada is the largest exporter of crude oil to the United States.

Global oil supplies are rapidly improving following breakthrough progress in US-Iran peace efforts, which has restored shipping confidence and encouraged tankers to transit the critical Strait of Hormuz with their tracking signals activated.

Underscoring this supply surge, US Energy Secretary Chris Wright stated at the Reuters Global Energy Forum in New York that roughly 20 million barrels of oil exited the Strait within a single 24-hour window, marking a clear return to normal operational flows.

Shipping data confirms this rebound, showing that three previously stranded tankers carrying 5 million barrels of crude finally exited the Gulf on Wednesday under the interim diplomatic deal. Available supply is expected to expand even further due to a temporary US waiver that permits the purchase of already-loaded Iranian oil.

Compounding the pressure on the Canadian Dollar, Canada’s 10-year government bond yield fell to a three-month low of 3.36% in late June, as signs of cooling underlying domestic inflation reinforce expectations that the Bank of Canada (BoC) will refrain from raising interest rates for the rest of the year.

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Australian Dollar remains subdued following labor data

  • AUD/USD loses ground as the Australian Dollar holds losses following domestic labor market data.
  • Australia’s Unemployment Rate ticked down to 4.4% from 4.5%, as the economy added a strong 40.3K jobs in May.
  • CME FedWatch tool indicates markets are now pricing in an 83.1% probability of rate hikes by the end of December.

AUD/USD continues its losing streak for the eighth consecutive day, trading around 0.6900 during the Asian hours on Thursday. The pair remains subdued as the Australian Dollar (AUD) holds losses following the release of domestic labor market data.

According to the latest data from the Australian Bureau of Statistics (ABS), Australia’s labor market showed strong signs of recovery in May, highlighted by the Unemployment Rate trickling down to 4.4% from April’s 4.5%. This drop aligned perfectly with market expectations. The most striking takeaway from the report was the net Employment Change, which saw an influx of 40.3K jobs. This easily surpassed the consensus forecast of a 25K increase and marked a sharp turnaround from the 40.7K jobs lost during the previous month.

Under the hood, the data reveals that while the overall Participation Rate held steady at 66.7%, the workforce expansion was primarily driven by part-time roles. Part-Time Employment surged by 35.2K positions, completely reversing the 19K decline seen in April. Full-Time Employment also bounced back, albeit more modestly, adding 5.2K jobs following a notable drop of 21.7K in the prior reading.

The AUD/USD pair weakens as the US Dollar (USD) may continue its winning streak amid rising market expectations of Federal Reserve (Fed) interest rate hikes later this year. Traders are positioning for tighter monetary policy after Federal Reserve Chairman Kevin Warsh signaled a firm focus on taming inflation, noting that the broader economy remains on a stable footing. Reflecting this hawkish shift, the CME FedWatch tool shows that markets are now pricing in an 83.1% probability of rate hikes by the end of December.

Traders await the upcoming US Personal Consumption Expenditures (PCE) data release due later in the day, where headline inflation is expected to heat up to 4.1% YoY in May from April’s 3.8%, and core PCE is projected to edge higher to 3.4% YoY.

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British Pound holds gains above 1.3150, US PCE inflation data looms

  • GBP/USD rebounds to around 1.3175 in Thursday’s Asian session. 
  • UK PM Keir Starmer resigned on Monday, throwing UK politics into sudden turmoil. 
  • Traders will keep an eye on the US PCE Price Index report for May, which is due on Thursday. 

The GBP/USD pair recovers some lost ground to near 1.3175 during the Asian trading hours on Thursday. However, the potential upside for the major pair might be limited amid UK political instability and rising expectations of US interest rate hikes this year. Traders await the US May Personal Consumption Expenditures (PCE) inflation data on Thursday for fresh impetus. 

UK Prime Minister Keir Starmer resigned on Monday, throwing the country into yet another political crisis. Starmer stepped down under intense pressure following Andy Burnham’s victory in the Makerfield by-election last week. His Labour Party will now need to select a new leader to lead the country.

Traders will closely monitor what Burnham’s policy would look like. Analysts warned that Burnham’s preferred expansionary fiscal stance, higher taxation, and increased gilt issuance could weigh on the British Pound (GBP) against the US Dollar (USD). 

The US PCE Price Index report for May will take center stage on Thursday. The headline PCE is expected to show a rise of 4.1% YoY in May, compared to 3.8% in April. The core CPE inflation is projected to show an increase of 3.4% YoY in May, versus 3.3% prior.  Any signs of easing inflation in the US could undermine the Greenback and create a tailwind for the major pair. 

Meanwhile, traders reassess the timing of possible US rate hikes after the Federal Reserve’s (Fed) hawkish signal. Markets have priced in nearly a 34.2% probability of a 25 basis points (bps) hike at the July meeting, up from 8.5% a week ago, and 66.4% for September, up from 29.1%, according to the CME FedWatch tool.

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EUR/JPY Price – Trades near 184.00 after rebounding from symmetrical triangle

  • EUR/JPY remains stuck in a corrective phase dominated by short-term downward pressure.
  • The 14-day Relative Strength Index at 36.96 suggests downside momentum is slowing but not yet fully exhausted.
  • The currency cross trades above the 183.69 VWAP, indicating mild bullish sentiment for the current session.

EUR/JPY pares its daily losses, remaining in the negative territory and trading around 183.80 during the Asian hours on Thursday. The currency cross holds in a corrective phase below the short- and medium-term trend filters, with the nine-day Exponential Moving Average (EMA) at 184.47 and the 50-day EMA at 184.95 acting as immediate overhead caps and reinforcing a bearish near-term bias.

The EUR/JPY cross has slipped back under the moving averages after failing to sustain gains near recent highs, while the 14-day Relative Strength Index (RSI) at 36.96 approaches oversold territory, hinting that downside momentum is softening but not yet exhausted.

The EUR/JPY cross is remaining within the symmetrical triangle, suggesting market indecision and an impending breakout as energy builds.

The spot price is trading slightly above the Volume-Weighted Average Price (VWAP) at 183.69, suggesting a mild bullish sentiment for the current trading session. Buyers are willing to pay more than the average price paid by all other traders throughout the day.

In context with the symmetrical triangle, trading just above the day’s average volume weight indicates that bulls are trying to push the price toward the upper boundary of that triangle for a potential breakout.

The initial support is aligned at the lower boundary of the symmetrical triangle around 183.40. Further declines would expose the four-month low of 181.87, recorded on March 16, followed by six-month low of 180.81.

On the upside, a recovery above the nine-day EMA at 184.47 would be the first sign of easing pressure, though bulls would likely need a daily close over the 50-day EMA at 184.95 to challenge the major resistance band near all-time high of 187.95.

Chart Analysis EUR/JPY

Euro Price Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD-0.05%-0.09%-0.06%-0.03%0.10%0.17%-0.15%
EUR0.05%-0.02%0.04%0.06%0.18%0.25%-0.08%
GBP0.09%0.02%0.02%0.07%0.19%0.27%-0.08%
JPY0.06%-0.04%-0.02%0.03%0.16%0.21%-0.11%
CAD0.03%-0.06%-0.07%-0.03%0.12%0.20%-0.15%
AUD-0.10%-0.18%-0.19%-0.16%-0.12%0.06%-0.24%
NZD-0.17%-0.25%-0.27%-0.21%-0.20%-0.06%-0.35%
CHF0.15%0.08%0.08%0.11%0.15%0.24%0.35%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

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EUR/USD Price – Rebounds above 1.1350, but outlook stays bearish below key resistance

  • EUR/USD gains ground to near 1.1370 in Thursday’s early European session. 
  • The bearish outlook of the major pair remains intact below the key 100-day SMA, with oversold RSI momentum. 
  • The initial support level to watch is 1.1350; the first upside barrier is seen at 1.1411. 

The EUR/USD pair trades in positive territory around 1.1370 during the early European session on Thursday. A surprisingly hawkish message from Kevin Warsh as the new Federal Reserve (Fed) chair last week has traders pricing a US hike as soon as September. Markets might turn cautious later in the day ahead of the key US Personal Consumption Expenditures (PCE) report. 

The headline PCE is expected to show a rise of 4.1% YoY in May, versus 3.8% prior, while the core PCE is projected to show an increase of 3.4% YoY in May, compared to 3.3% in April. If the reports show hotter-than-expected outcomes, this could reinforce the expectation of US interest rate hikes later this year and underpin the US Dollar (USD) against the Euro (EUR). 

Chart Analysis EUR/USD

Technical Analysis:

In the daily chart, EUR/USD extends its decline below the 20-day Bollinger simple moving average and remains well under the 100-day moving average, keeping the broader tone decisively bearish. Price is only slightly above the lower Bollinger Band support at 1.1351, while the Relative Strength Index (14) at 28.3 slips into oversold territory, hinting at stretched downside conditions but not yet signaling a firm rebound.

On the downside, immediate support is located at the lower Bollinger Band around 1.1350, where a sustained break would open the door to further losses toward the 1.1300 psychological level. On the topside, initial resistance emerges at the March 13 low of 1.1411, en route to the 20-day Bollinger middle band near 1.1530 and the 100-day moving average at 1.1650. Only a recovery above this layered resistance zone would start to ease the current bearish pressure.

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Dollar Stands Tall on Hawkish Fed Bets

The dollar index traded near 101.5 on Thursday, holding around its highest levels in more than a year as investors continued to price in Federal Reserve interest rate hikes later this year, while awaiting a key inflation report for further direction. Last week, the Fed signaled growing support for tighter monetary policy, with Chair Kevin Warsh reaffirming his commitment to restoring price stability. Those expectations have largely outweighed the impact of progress in US-Iran peace negotiations, which have pushed oil prices back to pre-conflict levels and helped ease inflation concerns. Market participants are now focused on the latest PCE price index report, the Fed’s preferred measure of inflation. Other closely watched releases include final first-quarter GDP figures, May personal income and preliminary durable goods orders data, as well as weekly jobless claims for the period ending June 20.

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Australian Dollar Approaches 3- Month Low

The Australian dollar fell further below $0.690, approaching a three-month low as broad US dollar strength outweighed a rebound in domestic employment data. Australia’s economy added 40,300 jobs in May, rebounding from a revised decline of 40,600 in April and exceeding market forecasts for a 30,000 increase, while the unemployment rate edged down to 4.4% from 4.5%, as expected. The latest labor market report comes on top of Wednesday’s mixed consumer inflation figures, which have left markets divided on another interest rate hike, priced in at 50% likely by year’s end rather than at the August meeting. RBA Deputy Governor Andrew Hauser said on Wednesday that the central bank still has more work to do to bring inflation back to its 2-3% target, indicating that further policy tightening may be needed as underlying price pressures remain elevated. Meanwhile, the US dollar remained broadly stronger as investors continued to price in Federal Reserve interest rate hikes later this year.