USD/CAD Dips as Oil and Rate Outlook Shift

USD/CAD slipped further and traded near 1.3770[1] in Tuesday's Asian session, after falling almost 0.5% in the previous session. Market experts[2] highlight that the Canadian Dollar has been on the positive side since an improved oil price has been a boost to the commodity based currency. The reports[3] note that WTI crude increased on fear of possible supply disruption when Ukrainian drone attacks hit Russian energy infrastructure. Simultaneously, increasing pressure by the U.S. on those nations that continue to buy Russian crude[4] contributed to supply risk. Market analysts[5] point out that the developments boosted oil markets and made the Canadian Dollar gain at the expense of the US Dollar/CAD pair.

Market commentators[6] point out that the markets are anticipating the Bank of Canada to reduce rates by 25 basis points on Wednesday and the bets on easing increase following the poor employment statistics. In August, Canada lost approximately 65,500 jobs and the rate of unemployment increased to 7.1%[7]. It is also noted that the focus has shifted to the Consumer Price Index[8] report of Tuesday, which may inform the perceptions of the next step that the BoC will take. It is expected that traders will be keeping a close eye because the rates of inflation[9] will help in deciding the correct move that should be made to boost the economy of Canada by cutting the rate.

Market reports[10] underlines that the US dollar is falling behind as traders prepare for the Federal Reserve meeting in September on Wednesday. It is expected that the cut will be 25-basis-points, but there is a slight possibility that it will be a deeper 50-point cut that is expected. Investors[11] are also expecting additional easing in 2026 as the Fed aims at protecting the economy against recession risks. Market experts highlight that the focus will also be on the Fed Summary of Economic Projections, where the policymakers have a dot plot indicating their expectations of the interest rates in the next few months.

Market experts[12] underlines that the Federal Reserve has been broadly predicted to give three successive rate reductions of 25 basis points in the year ending. The lower inflation readings have also influenced Morgan Stanley and Deutsche bank to re-chip their projections, with the two companies anticipating that the US central bank[13] will reduce the rates in all the remaining meetings in September, October and December. It is also pointed out that both institutions, according to Reuters, view a gradual rate of easing as the policymakers strive to sustain growth balancing the risks of inflation though this is a reversal of the anticipation.

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USD/JPY Eyes Breakout Amid Policy Divergence Tensions

The Japanese Yen maintained its strength and traded around 147.00[14] in Tuesday's Asian session. Market reports underline that the US dollar weakness also contributed to the shift because investors are becoming increasingly convinced of the Bank of Japan (BoJ)[15] continuing its course towards policy normalisation. This is in contrast to the expectations that the Federal Reserve[16] will be giving greater monetary easing in the near future. It is assumed that the divergence of the policies[17] has pushed the Dollar down to its lowest level since at the end of July, and this benefited the demand of the lower-yielding Yen.

Market reports[18] note that the recent political developments in Japan can make the Bank of Japan have an excuse to postpone the increase in interest rates. This, together with a positive mood in the market would ensure that the Japanese yen does not rise significantly as a safe-haven currency. It is assumed that traders will be inclined to remain reserved and evade substantive positions immediately preceding central bank decisions[19]. Market watchers point out that the US Federal Reserve[20] announces its policy on Wednesday, and the Bank of Japan starts the two-day meeting on Thursday, both of them being vital in USD/JPY.

Market analysts[21] underline that USD/JPY is still in a range, and it indicates that it will consolidate first before proceeding. The consistent inability to surpass the 200-day SMA[22] indicates the existence of risks to the downside. Nevertheless, further weakness should be established by evidently falling to a level below 147.00[23]. Should the sellers have momentum, then the duo can drift to 146.30-146.20 support then proceed to the 146.00 level. This has to be sold below this level and could be to 145.35 and ultimately 145.00 psychologically as the oscillators on the daily chart continue to point to a neutral side.

Market watchers believe that any rise in USD/JPY would likely face resistance at the 148.00[24] point. Any further push might cause short-covering and push the two towards the 200-day Simple Moving Average which is around 148.75. Further purchasing beyond 149.00 and the monthly peak of about 149.15 would eliminate the current pessimistic perspective. Such a turn would make the short term bias favourable to the buyers hence indicating that the bulls may have a chance to gain power once the price has been fixed above these main resistance points.

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EUR/USD Gains Amid Euro Data Wait, ECB Caution

EUR/USD maintained its fourth day of appreciation and traded around 1.1780[25] in Tuesday's Asian session. Market reports[26] highlight that investors are waiting to see new Euro Zone data, which is supporting the Euro. The traders are waiting until the publication of the seasonally adjusted Industrial Production figures of July that may provide an understanding of the manufacturing activity. It is also assumed that the focus on Germany is also changed to the ZEW Economic Sentiment[27] survey in September that will be released. Market observers[28] point out that such releases ahead of time can be the tone of short-term shifts of the common currency.

Euro was supported on Tuesday following hawkish statements by the European central bank policymaker Isabel Schnabel[29]. She pointed out that the interest rate in the Eurozone is at the right level however that there is still a risk of inflation that is tilted towards the higher side. Schnabel also stated that the economic growth will perform better than expected, and the domestic demand will compensate for the weak exports. Market reports[30] observe that her remarks gave investors greater confidence in the Euro because the markets believe that strong vigilance on inflation is an indication of stable policies.

ECB policymaker Peter Kazimir[31] told the market on Monday that the policy did not need to be altered given a slight change in inflation, but he stated that there were upward risks. He observed that interest rates are at the neutral stage. Market experts[32] point out that the euro also appreciated against the US dollar as the markets were highly optimistic that the Federal Reserve would lower the interest rates by 25 basis points during the meeting on Wednesday. Market observers[33] believe that a more significant reduction by 50 points is considered to be unlikely but investors believe a possible recession will be countered by further reduction through 2026.

Some analysts[34] believe that the traders will be keen on the Federal Reserve Summary of Economic Projections, especially the dot plot. Market commentators[35] point out that this chart indicates the expectations of each of the Federal Open Market Committee in their view of the direction towards which the interest rates would be set in the nearest future and it provides the idea of the possible policy direction.

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NZD/USD Steady as Traders Await Fed and GDP Data

NZD/USD maintained its steadiness and traded near 0.5970[36] in Tuesday's late Asian session, with markets awaiting a busy week ahead. Market reports[37] believe that traders are wary of two major events that are on the brink that may trigger a sharp action in Kiwi pairs. The Federal Reserve is going to declare its most recent policy action on Wednesday, and it is one of the aspects that investors will observe keenly to determine how interest rates should be. Market watchers[38] anticipate that New Zealand will publish the second-quarter GDP results a day after that, which is likely to provide new information about the economic performance of this country.

Market reports highlight the US Dollar Index (DXY)[39] that tracks the Greenback in relation to six major currencies is trading close to seven weeks low of 97.10 in late Asian trading. Some analysts[40] believe that it is still unclear whether investors will be optimistic before the Federal Reserve makes a major decision on Wednesday, in which the central bank is likely to embark on a monetary-easing cycle. Market reports[41] underline that increasing apprehensions about the health of the US labour market have contributed to the expectations of lower interest rates and the dollar is under pressure waiting to see the policy move.

As CME FedWatch tool[42] shows, there is a 96% probability of the Federal Reserve reducing interest rates by 25 basis points to 4.00% to 4.25% with a smaller percentage of markets taking a greater 50 point reduction. Market reports[43] suggest that today, the focus will be on the US Retail Sales figures which are due at 12.30 GMT. Market commentators point out that the data[44] is expected to moderate to 0.3% month-on-month, as compared to higher levels of 0.5% in July giving a major pointer of trends in consumer demand.

Some analysts believe that the economy of New Zealand[45] is projected to have declined by 0.3% in the second quarter having grown by 0.8% during the first three months of the year. The decline in the growth indicates that the recovery is still not stable, which causes worries about the economic perspectives of the country. A fall in the GDP will only reinforce the market sentiments that the Reserve Bank of New Zealand(RBNZ) can potentially make further interest rate reductions before the year ends in an attempt to boost activity.

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