Currency Hedger No Comments

Canadian Dollar gains on higher oil prices

  • USD/CAD slips as the commodity-linked Canadian Dollar gains on higher oil prices.
  • Crude oil prices gain as Trump reinstated an Iranian blockade and imposed a 20% transit fee on other vessels securing the strait.
  • The US Dollar could receive support as intensifying Middle East tensions could drive global investors into safe-haven assets.

USD/CAD continues its losing streak after remaining flat in the previous day, trading around 1.4150 during the Asian hours on Tuesday. The pair depreciates as the commodity-linked Canadian Dollar (CAD) receives support from higher oil prices. It is important to note that Canada is the largest crude exporter to the United States (US).

Crude oil prices rise due to mounting supply anxieties following a sharp escalation of geopolitical hostilities in the Middle East. US President Donald Trump has reinstated a naval blockade targeting Iranian vessels and customers transiting the Strait of Hormuz, while simultaneously announcing that all other commercial cargo passing through the strategic waterway will be subject to a 20% reimbursement fee.

President Trump asserted that the US must be financially compensated for its military efforts to secure the volatile chokepoint, pointing directly to regional nations that benefit from US protection, including Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Kuwait.

The USD/CAD pair’s downside remains limited as a wave of geopolitical tensions in the Middle East fuels safe-haven demand, which could drive investors back into the US Dollar (USD). At the same time, climbing crude oil prices are complicating the outlook; while higher oil typically boosts the commodity-linked Canadian Dollar (CAD), it is also triggering renewed fears that energy-driven inflation will force the Federal Reserve (Fed) to tighten policy further. Market expectations have shifted rapidly in response, with the CME FedWatch Tool now showing a 51% probability of a Fed rate hike in September, compared to just a 23% chance that rates will stay on hold.

Market participants are temporarily pausing ahead of two massive macroeconomic catalysts scheduled for Tuesday. First up is the US June Consumer Price Index (CPI) report, where analysts anticipate a divergence between a 0.1% month-on-month decline in headline inflation and a sticky 0.3% increase in the core reading. Shortly after, Federal Reserve Chair Kevin Warsh will deliver highly anticipated congressional testimony, a session that traders will dissect word-by-word for hints on whether the central bank will validate the market’s growing hawkishness.

Currency Hedger No Comments

Euro posts modest gains above 1.1350 as traders await US CPI inflation release

  • EUR/USD trades with mild gains around 1.1385 in Tuesday’s early Asian session. 
  • Trump said that the US will blockade Iran in the Strait of Hormuz and charge ships 20% for safe passage. 
  • Traders brace for the US CPI data later on Tuesday.

The EUR/USD pair posts modest gains near 1.1385 during the Asian trading hours on Tuesday. Nonetheless, the potential upside for the major pair might be limited amid renewed US military strikes against Iran. Traders will take more cues from the US June Consumer Price Index (CPI) inflation data, which will be released later on Tuesday. 

US President Donald Trump on Monday announced that the US is reinstating its blockade of Iranian maritime traffic and would impose a toll of 20% on all cargo being shipped through the Strait of Hormuz. 

The US military has resumed strikes on Iran, including on the port city of Bandar Abbas and on the Qeshm and Kish islands. In response, Iran has struck two UAE tankers, the Mombasa and Al Bahiyah. Rising tensions in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the major pair in the near term. 

The US CPI inflation report will be published on Tuesday, which could offer some hints about the US Federal Reserve’s (Fed) next move. A softer inflation outcome would delay the case for the US interest rate hikes and undermine the US Dollar (USD) against the Euro (EUR). 

Currency Hedger No Comments

Japanese Yen consolidates as USD bulls look to US CPI and Fed’s Warsh

  • USD/JPY stalls the previous day’s strong move up, though the downside seems cushioned.
  • Economic risks from the Mideast crisis and the wide US-Japan rate gap undermine the JPY.
  • Safe-haven buying and Fed hike bets favor USD bulls ahead of the US CPI and Fed’s Warsh.

The USD/JPY pair is seen consolidating the previous day’s strong move up and trading just below mid-162.00s during the Asian session on Tuesday. Spot prices, however, remain close to a four-decade top touched earlier this month, keeping traders on edge amid expectations of a possible intervention by Japanese authorities.

In the meantime, Japan’s Finance Minister, Satsuki Katayama, said that a change to the Government Pension Investment Fund (GPIF) asset allocation could be examined if the investment environment shifts sharply. This, in turn, lends support to the Japanese Yen (JPY). The US Dollar (USD), on the other hand, pauses after a two-day rally as bulls opt to wait for the release of the latest US consumer inflation figures and US Federal Reserve (Fed) Chair Kevin Warsh’s congressional testimony. This further contributes to capping the upside for the USD/JPY pair.

Meanwhile, a further escalation of tensions between the US and Iran, along with hawkish Fed expectations, might continue to act as a tailwind for the safe-haven Greenback. In the latest developments surrounding the Middle East crisis, US President Donald Trump on Monday reimposed a blockade of Iranian ports, and the US military launched a third straight night of strikes against Iran. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) targeted US facilities in the region, while two UAE tankers were hit by Iranian cruise missiles in the Strait of Hormuz.

This adds to economic concerns amid Japan’s heavy reliance on imported oil from the Middle East and continues to undermine the JPY. Furthermore, a fresh leg up in Crude Oil prices reignites inflation fears and bolsters bets that the US central bank will raise borrowing costs by the end of this year. This could further widen the US-Japan rate gap, despite the recent Bank of Japan (BoJ) rate hike to 1%, or the highest since 1995, and keep the so-called Yen carry trade active. The fundamental backdrop keeps the USD/JPY pair close to a four-decade high and favors bulls.

Currency Hedger No Comments

British Pound strengthens above 1.3350 ahead of US CPI data

  • GBP/USD gathers strength to near 1.3360 in Tuesday’s Asian session. 
  • Renewed US strikes on Iran and fears over Strait of Hormuz shipping might cap the upside for the pair. 
  • BoE’s Pill said interest rates are likely to rise to keep inflation in check. 

The GBP/USD pair trades in positive territory around 1.3360 during the Asian trading hours on Tuesday. However, the potential upside for the major pair might be limited amid fears of an escalating US-Iran conflict. The US June Consumer Price Index (CPI) inflation report will take center stage later on Tuesday. 

US President Donald Trump said on Monday that Washington was reinstating a naval blockade on Tehran and would ensure the Strait of Hormuz remained open for a fee following fresh exchanges of missile and drone strikes, per Reuters. The US military said that US forces completed new strikes on Iranian military targets, adding that more than 50,000 US service members are currently deployed across the Middle East. 

Meanwhile, the Iranian Islamic Revolutionary Guards Corps (IRGC) said on Tuesday that cooperation with the ‘aggressor enemy’ in the Strait of Hormuz will delay the reopening of the waterway and create a global energy crisis. Concerns over escalating tensions between the US and Iran could boost a safe-haven currency such as the US Dollar (USD) and cap the upside for the GBP/USD pair. 

Traders ramped up bets that the Bank of England (BoE) will be forced to raise interest rates this year to keep inflation under control. BoE Chief Economist Huw Pill said that interest rates are likely to rise this year to prevent inflation from becoming entrenched. 

Currency Hedger No Comments

United States Dollar Index declines despite rising safe-haven demand, Fed rate hike odds

  • US Dollar Index may regain ground as escalating Middle East tensions drive safe-haven demand.
  • CENTCOM announced precision strikes on Iranian targets, noting over 50,000 US service members are deployed across the Middle East.
  • The CME FedWatch Tool shows a 51% chance of a September Fed rate hike versus a 23% hold probability.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground after two days of gains and is trading around 101.20 during the Asian session on Tuesday.

However, the downside of the Greenback could be limited amid rising safe-haven demand due to escalating Middle East tensions. US Central Command (CENTCOM) announced new precision strikes on Iranian military targets, noting that over 50,000 US service members are currently deployed across the Middle East. Meanwhile, Iran’s IRGC stated that two “offending supertankers” were disabled in the Strait of Hormuz after ignoring warnings and using a mined route. Iran warned that cooperating with the US would delay the waterway’s reopening and trigger a global energy crisis.

Hormuz tensions drive oil prices higher, stoking fears that energy-driven inflation will force the Federal Reserve (Fed) to keep interest rates elevated. Market expectations have shifted rapidly in response, with the CME FedWatch Tool now showing a 51% probability of a Fed rate hike in September, compared to just a 23% chance that rates will stay on hold.

Traders await Tuesday’s US June Consumer Price Index (CPI) report, where analysts anticipate a divergence between a 0.1% month-on-month decline in headline inflation and a sticky 0.3% increase in the core reading.

Also, Federal Reserve Chair Kevin Warsh will deliver highly anticipated congressional testimony, a session that traders will dissect word by word for hints on whether the central bank will validate the market’s growing hawkishness.

Currency Hedger No Comments

South Korean Won Nears 2-Month High

The South Korean won strengthened to around 1,490 per dollar, extending gains toward its highest level since mid-May, as investors increasingly priced in a Bank of Korea interest rate hike later this week. Persistent inflation, resilient economic growth, and elevated household debt reinforced the case for the central bank’s first rate increase in more than three years, supporting the local currency. The won also drew support from anticipated foreign exchange inflows, with SK Hynix expected to convert part of the proceeds from its $26.5 billion US listing into won for domestic investment, increasing dollar supply in the local foreign exchange market. Meanwhile, investors remained cautious as they monitored heightened Middle East tensions after the US reinstated a blockade of Iranian ports and President Donald Trump announced a 20% charge on cargo passing through the Strait of Hormuz, fueling concerns over higher energy costs, lifting oil prices, and supporting demand for the US dollar.

Currency Hedger No Comments

Euro Drops Near One-Year Low on Middle East Tensions

The euro opened the week at $1.14, nearing its one-year low from June, as investors responded to escalating Middle East tensions. Oil prices surged after another round of US strikes on Iran, with both sides disputing the status of the Strait of Hormuz. The US Central Command reported striking dozens of targets to weaken Iran’s ability to threaten shipping in the waterway. Iran, however, announced on Sunday that the strait would remain closed “until further notice.” The uncertainty fueled inflation concerns, leading investors to bet on further European Central Bank interest rate hikes. The ECB had already raised rates in June for the first time since 2023. Now, markets expect two additional hikes over the next year, with the first likely in September, to counter inflation driven by rising fuel costs tied to the Iran conflict. ECB policymaker Yannis Stournaras warned on Friday that the central bank is “back to square one” in its battle against high inflation in the eurozone.

Currency Hedger No Comments

Pound Slips as Middle East Tensions Weigh on Markets

The pound fell back below $1.34, retreating from three-week highs, as investors reacted to rising Middle East tensions. Oil prices surged following another wave of US strikes on Iran, with both sides clashing over the status of the Strait of Hormuz. The US Central Command confirmed strikes on dozens of targets to curb Iran’s ability to threaten shipping in the region, while Iran declared the strait would remain closed “until further notice.” The resulting uncertainty amplified inflation concerns, prompting investors to increase bets on further Bank of England interest rate hikes. Markets now anticipate at least one rate increase later this year, with a possibility of a second. Politically, Andy Burnham is set to become the new Labour party leader when the leadership contest ends on Friday and is expected to be officially appointed as prime minister next Monday. Sterling’s resilience amid recent political turmoil suggests much of the negative news has already been factored in.