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Chinese Yuan loses as safe-haven demand lifts US Dollar

  • USD/CNH climbs as rising Middle East tensions drive investors toward the US Dollar as a safe-haven asset.
  • Iran told Houthi rebels to block the Red Sea oil route if the US attacks Iranian infrastructure.
  • Economists and an adviser say China can stabilize growth by fast-tracking already-budgeted national infrastructure projects this year.

USD/CNH gains ground for the second successive day, trading around 6.7760 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) receives support from escalating developments surrounding conflicts in the Middle East.

Reuters reported on Thursday that Iran has instructed Yemen’s Houthi militia to stand ready to close the critical Red Sea oil route if the United States strikes Iranian power infrastructure, presenting a potent new threat to global energy supplies. Amplifying these concerns, the Tasnim news agency reported explosions in Bandar Abbas, Qeshm, and Ahvaz, while very loud explosions were also heard in Kuwait and as far away as Basra.

These geopolitical flare-ups follow threats made earlier this week by US President Donald Trump, who stated the US would strike Iran’s bridges and power plants next week if the country does not return to the negotiating table. Ultimately, these signs of escalating tensions in the Middle East could boost safe-haven currencies like the US Dollar, potentially creating a strong tailwind for the USD/CNH pair in the near term.

China can stabilize its economic growth this year by fast-tracking already-budgeted national infrastructure projects, according to economists and a government adviser. This approach reduces the likelihood of large-scale fiscal stimulus. The strategy allows Beijing to counter an unexpected, broad decline in investment—which recent data showed has dragged down growth—while maintaining strict control over local government spending, per Reuters.

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Chart of the Day – What is next for July’s strongest currency?

The geopolitically turbulent start of July has brought a strengthening of commodity currencies (among them, the Norwegian krone). However, the top of the G10 list is occupied by the New Zealand dollar, which may come as a surprise to some. The currency has strengthened by nearly 2.5% against the dollar over the past two weeks.

What lies behind such a significant move?

Fundamental to this, as is often the case, were the actions of the central bank. On 8 July, the Reserve Bank of New Zealand raised the main interest rate by 25 bps, lifting it to 2.5%. This was the first rate hike in New Zealand in over three years. The key, however, was not just the decision to raise rates (which was largely priced in by markets) but the communication that accompanied it.

  • The decision was made unanimously by the committee. At the previous meeting in May, there was a 3-3 split in votes, and the balance was only tipped by the new governor, Anna Breman.
  • The RBNZ Chief Economist, Paul Conway, drew clear attention to pro-inflationary risks resulting from the escalation of tensions in the Middle East.
  • The Bank stated in its communiqué that “while further interest rate hikes seem likely at upcoming meetings, their timing is highly uncertain.”
  • RBNZ research suggests that after a long period of elevated inflation, New Zealand companies are significantly more inclined to immediately pass costs on to consumers and less willing to lower prices when costs fall.

As a result, the market’s baseline scenario is another hike in September and another upward move in October or December. This would bring the main interest rate (cash rate) to 3%, which the bank currently defines as the neutral level.

What lies ahead? There is still plenty of time until September.

  • In the meantime, the Q2 inflation report will be published. The consensus assumes a significant increase in the headline indicator, most likely to around 4%.
  • After the manufacturing PMI rose to its highest level since 2021 (59.7), data on production could prove particularly interesting.

Data from China, New Zealand’s largest trading partner, which absorbs nearly 25% of the country’s total exports (mainly dairy, meat, wood, and fruit), will also be significant.

  • Stronger economic data from the Middle Kingdom usually means greater demand for products imported from New Zealand.
  • In this context, the readings published today are not particularly optimistic. GDP dynamics fell to the lowest level since 2022 (+4.3% year-on-year).
  • The Asian giant is burdened by a property market crisis, weak domestic demand, and a decline in investment (down 5.7% year-on-year in the first half of the year).

The strength of the dollar itself, which is awaiting further news from the geopolitical front and the September FOMC decision, could, of course, also prove key.

  • The market does not really expect a hike, so the focus will be on communication. Kevin Warsh remains enigmatic, so upcoming conferences may attract particular attention.

Technical Analysis Figure 1: NZDUSD [D1] (08.07.2025 – 15.07.2026)

Source: xStation, 15.07.2026 The NZDUSD pair has broken out of the downtrend and is currently testing key support levels. The price has breached the 50% Fibonacci retracement and is hovering around the 150-day moving average. The upward momentum is also suggested by the MACD indicator. The Relative Strength Index (RSI) has reached 63.4, which confirms a clear advantage for market bulls, while at the same time indicating that the market is not yet in the extreme overbought zone (above 70).

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Trade of The Day – AUD/CAD

cts: The main trend on AUDCAD remains downward for a few days The price bounced off the upper limit of 1:1 structure at 0.9800

Recommendation: Trade: Short AUDCAD at market price Target: 0.9780, 0.9769 Stop: 0,9807

Opinion: Looking at the M15 interval, AUDCAD has been trading in a downward trend recently. Following an upward correction, the price failed to break above the resistance marked with the upper limit of 1:1 structure and 100-period moving average from the M15 interval, and started to pull back. According to the Overbalance methodology, the main sentiment prevails and we should expect the price to continue to fall. We recommend going short AUDCAD at market price with two targets: 0.9780 and 0.9769 . We also recommend placing stop loss at 0.9807. Source: xStation5

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Oil prices sharply up after Iran escalation

Brent crude tests $85 per barrel amid intensified attacks between the US and Iran Oil prices are rising for the second day in a row due to tensions in the Middle East. Brent crude is up over 2%, testing the vicinity of $85 per barrel. This is the highest level since the downward gap that occurred between June 12 and 15. Situation in the Strait of Hormuz and US plans: President Donald Trump reinstated the blockade of Iranian ships passing through the Strait of Hormuz. Although the United States indicates that it will act as a security guarantor on this key waterway, Trump announced plans to collect a 20% fee (compensation) from all other cargo benefiting from this protection.

Iran’s reaction and plans: Despite the American blockade imposed on Iranian merchant ships, Tehran is not backing down and firmly announces the continuation of exporting its raw materials to world markets. At the same time, it reports an attack on two supertankers passing through the Strait of Hormuz. Market background: Further exchange of blows between Washington and Tehran postpones the prospect of quickly unblocking the Strait of Hormuz. This situation raises renewed inflation concerns and increases the likelihood of further interest rate hikes by the US Fed.

It is worth noting that US crude oil inventories are already extremely low from the perspective of recent years, and reserves are the lowest since the 1980s. If vessel traffic is not resumed, oil prices could rise even to the level of $100 per barrel. If the situation is tense but the ship flow is continued to a limited extent, prices will likely reach an important supply zone in the vicinity of $88-$90 per barrel, where important technical levels are located. Zapasy i rezerwy strategiczne w USA

US commercial inventories are the lowest since 2018, while strategic reserves are at their lowest since the 1980s. A further decline in inventories and reserves could raise concerns about energy security in the US, despite near-total self-sufficiency. It is worth noting, however, that the United States has served as a buffer for supplies to Asian countries. Source: Bloomberg Finance LP, XTB Brent crude chart on the D1 interval

The price of crude oil has risen by over 20% from its last local low at the turn of the month and is approaching the 61.8 retracement of the upward wave associated with the Iranian conflict. The 88-90 USD zone is reinforced by local lows and the 50-period average. Source: xStation5

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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.

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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.

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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. 

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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.