Category: Currencies

  • Dollar on Edge Ahead of CPI Data – Tuesday, 12 May

    Where we are: The Dollar Index (DXY) is currently hovering around 98.15, having traded in a tight overnight range of 98.00-98.25. This is slightly above Friday’s NY close. Key technical resistance lies at 98.50, with support around 97.80.

    What’s driving it: All eyes are on today’s US CPI release at 08:30 ET. The Fed’s patient hold hinges on continued disinflation, making this data pivotal. Forecasts suggest an uptick in CPI y/y to 3.7%, and a firm print would push back expectations of Fed cuts, supporting the dollar. The market is already positioned somewhat long USD, so a weak print carries squeeze risk. Recent Fed speak has been relatively quiet, though Governors Waller and Cook both spoke on Friday, but their comments were backward-looking. The recent rise in breakeven inflation, now at 2.47%, further underscores the sensitivity of the market to inflation data.

    • The market is net long USD, at the 83rd percentile (52w), increasing the probability of a squeeze if the data misses.
    • 10Y breakeven inflation rose 2bp on Monday to 2.47%, suggesting inflation expectations remain elevated.
    • The Warsh Fed Chair nomination cleared a Senate hurdle overnight, suggesting some continuity in monetary policy direction is likely, but the market’s focus is squarely on the CPI data this morning.

    NY session focus: The core event today is the 08:30 ET US CPI release. A higher-than-expected print will likely see the DXY test 98.50 resistance and potentially push towards 99.00, while a downside surprise could trigger a squeeze towards 97.50. The 11:59 ET Fed Chair Nomination Vote is largely priced in, but any unexpected issues could add volatility. The trade that’s working is fading USD rallies ahead of data releases. The at-risk trade is short USD into this CPI print. The pain trade is a substantial upside surprise on core CPI, forcing a rapid repricing of Fed expectations and a significant dollar short squeeze.

  • Euro Under Pressure as US CPI Looms Large – Tuesday, 12 May

    Where we are: EUR/USD is trading around 1.0785, having drifted lower in early European trade. The pair remains below the 1.08 handle after failing to sustain a rally overnight, trading in a narrow range. This is slightly below yesterday’s New York close.

    What’s driving it: The dominant driver for the Euro remains the anticipation surrounding this morning’s US CPI print. While the ECB cut rates by 25bp to 2.50% at its last meeting, maintaining a mild easing bias, a hot US CPI could significantly curtail further ECB action by driving up the dollar and imported inflation. Frank Elderson’s speech earlier today, focusing on deeper integration for boosting prosperity, hasn’t provided any immediate support to the Euro. Domestically, Eurozone HICP remains at 2%, with Core at 2.3%, hardly giving the ECB cause for concern but lagging the US on an equivalent basis.

    • ECB cut rates 25bp last month, but is proceeding cautiously.
    • US 10Y Breakeven Inflation is creeping up to 2.47%, putting pressure on the ECB’s dovish stance.
    • Speculator positioning in the Euro is modestly long (3.9% of OI) but not at an extreme, reducing short-squeeze potential if the CPI comes in soft.

    NY session focus: All eyes are on the 08:30 ET US CPI release. Forecasts point to a 3.7% YoY increase, with Core at 0.3% m/m. A higher-than-expected print will likely send EUR/USD below 1.0750, potentially testing the 1.07 level. Conversely, a soft print could fuel a rally towards 1.0850. Traders should also monitor the 11:59 ET Fed Chair Nomination Vote. The trade that’s working is shorting EUR/USD on rallies. The trade at risk is being long EUR/USD ahead of the CPI data. The pain trade is a weak CPI print coupled with dovish commentary from the Fed nominee, triggering a significant short squeeze in the Euro.

  • Sterling Under Pressure as Political Uncertainty Intensifies – Tuesday, 12 May

    Where we are: Cable is currently trading around 1.3535, pressured by rising UK borrowing costs. The pair traded in a tight overnight range, failing to sustain a recovery from yesterday’s late weakness. This level sits below the prior NY close, reflecting ongoing selling pressure this morning. Immediate resistance is seen near 1.3580, with support around 1.3500.

    What’s driving it: Domestic political uncertainty is weighing heavily on the Pound. News that UK borrowing costs have surged to levels not seen since 1998, coupled with continued pressure on Prime Minister Starmer, is sapping investor confidence. This is compounded by the Bank of England’s cautious stance; the central bank held rates steady at 4.50% at its last meeting, with an 8-1 vote split reflecting a reluctance to commit to a dovish path. While US macro plays a role, it’s clearly second fiddle to the immediate UK situation here.

    • UK 10-year gilt yields are trading at their highest level since 1998, reflecting rising borrowing costs and investor nervousness.
    • Speculative positioning in GBP remains crowded short at the 15th percentile, increasing the risk of a squeeze if the political situation stabilizes.
    • BIS central bank speeches are focused on US monetary policy and digital assets, offering little immediate support for Sterling.

    NY session focus: All eyes on the 08:30 ET US CPI release. A stronger-than-expected print could further bolster the Dollar and weigh on Cable, testing the 1.3500 level. Conversely, a downside surprise might offer a temporary reprieve, potentially pushing Cable towards 1.3580. Keep an eye on the 11:59 ET Fed Chair Nomination Vote — a surprise outcome would ripple through markets. The trade that’s working is selling into rallies, while the risk lies in a sudden shift in UK political sentiment. The pain trade here? A Starmer reaffirmation triggering a short squeeze.

  • Yen Under Pressure as Rate Hike Bets Pare Back – Tuesday, 12 May

    Where we are: USD/JPY is trading around 157.50, edging higher after a choppy overnight session. The pair has been range-bound between 157.20 and 157.80 since the Tokyo open, still testing levels close to the intervention zone that prompted MoF action recently. This level continues to be a key area of contention for traders.

    What’s driving it: The Yen is under pressure as markets re-evaluate the likelihood of near-term BoJ rate hikes. Despite the BoJ minutes from the April meeting suggesting a potential hike as early as June, caution prevails given the lack of concrete commitment. This dovish interpretation is amplified by a broader dollar bid ahead of key US CPI data. The 10Y JGB yield remains anchored below 1.0%, offering limited support to the Yen.

    • The BoJ debated a near-term rate hike at the April meeting, but this has not translated into firm expectations given external uncertainties.
    • Speculative positioning remains crowded short JPY, at the 13th percentile, presenting an asymmetric squeeze risk should the BoJ surprise hawkishly.
    • Finance Minister Katayama’s meeting with US Treasury Secretary Bessent, while reiterating close coordination on currency policy, also implies continued tolerance for Yen weakness within certain bounds.

    NY session focus: All eyes are on the 08:30 ET US CPI release, with forecasts of 0.6% m/m for the headline and 0.3% for the core. Stronger-than-expected prints will likely fuel further USD strength and push USD/JPY towards 158.00, potentially triggering renewed intervention warnings. A weaker CPI, however, could see a sharp reversal towards 156.80, squeezing the crowded JPY short positions. The Fed Chair Nomination Vote due at 11:59 ET is expected to pass, but any surprise there could add volatility. The prevailing trade is to fade JPY strength, but the intervention risk remains a key deterrent. The pain trade is a BoJ signal that they are ready to move pre-emptively to support the currency, prompting a violent short squeeze.

  • Loonie Remains Vulnerable to USD Strength – Tuesday, 12 May

    Where we are: USDCAD is currently trading around 1.3715, trading within a tight overnight range. This sits slightly above Friday’s close, but below the recent highs around 1.3750. The pair remains sensitive to both oil price fluctuations and US dollar strength.

    What’s driving it: The Bank of Canada’s dovish stance, coupled with recent disappointing domestic data, continues to weigh on the Canadian dollar. Macklem’s comments after the April 16th meeting, highlighting tariff uncertainty and a softer growth path, keep the prospect of future rate cuts alive. While recent GDP data surprised to the upside (2.6% MoM in March), last month’s weaker employment figures, underscored by an unexpected 17K job loss and a rising unemployment rate to 6.9%, are still fresh in investors’ minds, increasing bets on a potential BoC easing. Any strength in the loonie is largely being driven by external factors currently, as opposed to anything domestic.

    • The Bank of Canada’s dovish stance and openness to easing, reinforced by Governor Macklem’s recent commentary.
    • CAD weakness is partially fuelled by soft labor data and growing market consensus that the BoC will prioritize growth over inflation.
    • Speculative positioning shows a modestly short CAD position, with -14,659 contracts. A large shift w/w shows an increased bias to that short side.

    NY session focus: The primary focus for today’s NY session will be the 08:30 ET US CPI release. Stronger-than-expected US inflation data could lead to further USD strength, potentially pushing USDCAD towards 1.3750 and potentially beyond. Conversely, a softer print could provide a temporary reprieve for the Loonie. Also of note is the 11:59 ET Fed Chair Nomination Vote. Watch 1.3680 as intraday support. The pain trade for USDCAD would be a weak US CPI print alongside a hawkish surprise from the Fed, squeezing USD longs and CAD shorts simultaneously.

  • Aussie to Tread Water Pending Wage Data – Tuesday, 12 May

    Snapshot: AUD/USD sits near 0.7200, largely unmoved as markets await Australian Wage Price Index data due at 11:30 AEST. The RBA’s reluctance to commit to a rate cut path, highlighted by Governor Bullock’s comments about “uneven” inflation progress, continues to support the currency.

    • Watch for a break above 0.7230, the recent high, which could trigger further short covering.
    • Squeeze risk is elevated given the crowded long AUD positioning (96th percentile). A weaker-than-expected Wage Price Index print could spark a sharp move lower.

    Bias into NY: Neutral. The domestic focus remains on the upcoming Wage Price Index; a strong print supports current RBA stance, while a weak number opens the door for a downside surprise, amplified by the crowded long positioning.

  • SNB Easing Bias Undermines Swiss Franc Strength – Tuesday, 12 May

    Snapshot: USD/CHF trades around 0.7807, slightly higher after yesterday’s session. The SNB’s active easing posture, highlighted by Governor Schlegel’s openness to negative rates if disinflation persists, remains the key driver. Traders are also watching 08:30 ET US CPI prints, though the SNB stance dominates.

    • Watch for a break above 0.7820, which could signal further near-term CHF weakness.
    • A surprisingly hot US CPI print at 08:30 ET could accelerate USD strength against the Franc.

    Bias into NY: Short-term bias is towards USD/CHF upside given the SNB’s easing bias and moderately short CHF positioning, targeting a potential move towards 0.7850. US 10Y Breakevens are also bid, up 2bp, providing a mild tailwind.

  • Kiwi Vulnerable to Further Easing, Awaits US CPI – Tuesday, 12 May

    Snapshot: NZDUSD hovers around $0.594 as the RBNZ’s easing bias remains firmly in place, bolstered by recent rate cut and dovish signals. All eyes are on today’s 08:30 ET US CPI print, which could drive risk sentiment and influence the Kiwi.

    • Key level to watch: $0.590, a break below which could accelerate losses.
    • Risk to monitor: Any hawkish surprises in the US CPI data that might fuel a broad USD rally.

    Bias into NY: Bearish on NZDUSD as RBNZ’s dovish stance contrasts potential for higher-than-expected US inflation, which could propel the USD. A breach of $0.590 would open the door to further downside.

  • NY Session Tactical Brief – Monday, 11 May

    Regime: Risk-off, with oil spiking on escalating Middle East tensions and Trump rejecting Iran’s peace offer, VIX at 17.08 and 10Y yields slightly higher.

    Today’s market themes:

    • Geopolitical Risk: Middle East tensions driving oil and safe-haven flows.
    • Rate Divergence: CB policy driving FX crosses, particularly EUR/GBP and EUR/JPY.
    • Commodity Strength: Silver and Copper continue to show strong performance.

    The setup: Geopolitical tensions are escalating quickly, pushing oil higher and boosting safe-haven demand. The market is pricing in a higher risk of supply disruptions from the Middle East. Watch for further headlines as the situation develops; a break above $105 in Brent could trigger a larger risk-off move. US 10Y yield is at 4.393%.

    Watch list (native time per event):

    • 09:30 CST CNY: CPI y/y (forecast 0.9%, prior 1.0%)
    • 09:30 CST CNY: PPI y/y (forecast 1.7%, prior 0.5%)

    Bias by asset:

    • DXY:
      • Direction: Neutral
      • Domestic (US): Fed watching data; US yields steady
      • Cross: Geopolitical risk-off; Euro weakness capping upside
      • Levels: Support: 97.80, Resistance: 98.03
    • EUR/USD:
      • Direction: Down
      • Domestic (EU): ECB divergence widening vs BoE and Fed
      • Cross: DXY strength / US-DE 10Y spread widening / Risk-off
      • Levels: Support: 1.1749, Resistance: 1.1782
    • GBP/USD (Cable):
      • Direction: Neutral
      • Domestic (UK): BoE hawkish hold / higher Gilt yields supporting
      • Cross: DXY / US-UK 10Y spread / Risk-off offsets domestic strength
      • Levels: Support: 1.3570, Resistance: 1.3616
    • USD/JPY:
      • Direction: Up
      • Domestic (JP): BoJ dovish / JGB yields capped / Intervention watch
      • Cross: Higher US 10Y yield / DXY / risk regime
      • Levels: Support: 156.76, Resistance: 157.18
    • USD/CAD (Loonie):
      • Direction: Up
      • Domestic (CA): BoC dovish / WTI strength offset by CAD weakness
      • Cross: DXY / US-CA 10Y spread
      • Levels: Support: 1.3661, Resistance: 1.3695
    • AUD/USD (Aussie):
      • Direction: Down
      • Domestic (AU): RBA neutral / China data sensitivity
      • Cross: DXY strength / US-AU 10Y / China growth uncertainty
      • Levels: Support: 0.7220, Resistance: 0.7249
    • NZD/USD (Kiwi):
      • Direction: Down
      • Domestic (NZ): RBNZ dovish / dairy prices lackluster
      • Cross: DXY strength / US-NZ 10Y / risk-off sentiment
      • Levels: Support: 0.5939, Resistance: 0.5957
    • USD/CHF (Swissy):
      • Direction: Up
      • Domestic (CH): SNB dovish / Swiss yields low
      • Cross: DXY strength / safe-haven unwinding
      • Levels: Support: 0.7774, Resistance: 0.7795
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP: Down; EUR/JPY: Up; GBP/JPY: Up
      • Domestic: EUR/GBP: BoE vs ECB; EUR/JPY & GBP/JPY: rate divergence
      • Cross: DXY / risk regime / cross-of-crosses dynamics
      • Levels: EUR/GBP: 0.8647/0.8668; EUR/JPY: 184.39/185.02; GBP/JPY: 212.73/213.87
    • XAU (Gold):
      • Direction: Down
      • Domestic (asset-specific): Rising real yields / ETF outflows
      • Cross: DXY strength / risk-off demand limited
      • Levels: Support: 4655.6, Resistance: 4714.2
    • XAG (Silver):
      • Direction: Up
      • Domestic (asset-specific): Industrial demand / Gold strength
      • Cross: DXY / risk regime
      • Levels: Support: 7953.000, Resistance: 8418.000
    • WTI / Brent:
      • Direction: Up
      • Domestic (asset-specific): Geopolitical risk / potential supply disruption
      • Cross: DXY / risk regime
      • Levels: WTI: Support: 96.64, Resistance: 100.35; Brent: Support: 102.90, Resistance: 105.97
    • Copper:
      • Direction: Up
      • Domestic (asset-specific): China stimulus / LME stock levels
      • Cross: DXY / global growth proxy
      • Levels: Support: 625.4000, Resistance: 641.4300
    • SPX:
      • Direction: Down
      • Domestic (US): higher yields / earnings plateau
      • Cross: VIX rising / global risk aversion
      • Levels: Futures support: 7391.00, Resistance: 7420.25, Cash support: 7398.90
    • NDX:
      • Direction: Down
      • Domestic (US): Real yields / AI bubble potential
      • Cross: Rates sensitive / Rising VIX
      • Levels: Futures support: 29227.50, Resistance: 29399.25
    • US30 (Dow):
      • Direction: Down
      • Domestic (US): Cyclical rotation out / yields impact
      • Cross: bond-yield reaction
      • Levels: Futures support: 49471, Resistance: 49706
    • UK100 (FTSE):
      • Direction: Down
      • Domestic (UK): Sterling strength / Gilt yields rising
      • Cross: global risk aversion / US tone
      • Levels: Support: 22742, Resistance: 22850
    • DAX:
      • Direction: Down
      • Domestic (DE): Lower Bund yields / weaker outlook
      • Cross: US tech weakness / DXY / risk regime
      • Levels: Support: 24204, Resistance: 24362
    • Nikkei:
      • Direction: Down
      • Domestic (JP): Strong JPY / JGB yields rising slightly
      • Cross: US tech weakness / risk regime
      • Levels: Support: 62393, Resistance: 63385
    • BTC:
      • Direction: Down
      • Domestic (asset-specific): Crowded longs / Funding rates high
      • Cross: DXY / risk regime / Nasdaq correlation
      • Levels: Support: 62393, Resistance: 63385

    Positioning watch: AUD/USD and Bitcoin are crowded longs (96th and 83rd percentile, respectively), making them vulnerable to a squeeze lower on any disappointment or USD strength. GBP and JPY are crowded shorts, a positive surprise could trigger a squeeze higher.

    The pain trade: A surprise de-escalation in Middle East tensions combined with a dovish signal from the Fed would trigger a massive short squeeze in USD/JPY and GBP/USD, while simultaneously crushing oil prices and unwinding crowded long positions in AUD and BTC.

  • Dollar Stalls Near 98.00 as Iran Risk Persists – Monday, 11 May

    Where we are: The DXY is currently flat on the day at 97.87, holding its ground near the upper end of its intraday range of 97.80-98.03. This relative stability comes after a modest decline last week, with the index finding support around the 97.80 level. The Dollar remains bid as haven flows persist due to US-Iran tensions.

    What’s driving it: The primary driver is the continued geopolitical uncertainty surrounding US-Iran relations; President Trump dismissing Iran’s response to his peace proposal as “TOTALLY UNACCEPTABLE” keeps safe-haven demand for the Dollar elevated. Domestically, the Fed remains on a patient hold, reaffirming its data-dependent stance at the last meeting on March 19th, awaiting further confirmation of disinflation and a cooling labor market. This stance contrasts with the recent US nonfarm payrolls report in April, which significantly exceeded expectations, pushing back market expectations for rate cuts and lending support to the Greenback.

    • BofA and Goldman have pushed back Fed rate-cut expectations in response to persistent inflation risks and robust jobs data.
    • The US 10-year real yield (TIPS) sits at 1.96%, putting upward pressure on the Dollar.
    • CFTC data shows net non-commercial USD positioning at +693 contracts, in the 83rd percentile. This leaves the Dollar vulnerable to a squeeze should data disappoint or risk appetite improve markedly.

    NY session focus: With no major US data releases scheduled for today, focus will remain on geopolitical headlines and their impact on risk sentiment. Key level to watch is 98.00; a break above could trigger further upside. Conversely, a move below 97.80 could signal renewed weakness. The working trade remains buying dips on haven demand. The risk trade is a sudden de-escalation of tensions in the Middle East triggering a sharp Dollar selloff. The pain trade for the Dollar is a surprisingly soft CPI print that forces a repricing of Fed rate-cut expectations.

  • EUR/USD Consolidates Near Highs, ECB Easing Still In Play – Monday, 11 May

    Where we are: EUR/USD is currently trading at 1.1769, up +0.06% on the day and near the upper end of today’s 1.1749-1.1782 range. The pair is holding its gains from late last week, consolidating above the 1.1750 level and slightly above the prior NY close.

    What’s driving it: The Euro is finding some support as markets price in at least two ECB rate hikes for 2026, with money markets indicating over a 78% probability of the first hike in June. However, the ECB’s latest decision to cut rates by 25bp in April and maintain a mild easing bias continues to hang over the currency. The Bund 10Y yield is up slightly at 3.040%, but the substantial US-DE 10Y yield spread of +135bp continues to favour the Dollar, limiting Euro upside. DXY remains steady at 97.87.

    • ECB President Lagarde on Friday reiterated the central bank’s readiness to act swiftly if necessary, though this hasn’t prevented markets from pricing in further easing down the line.
    • Reuters reported that ECB’s Kocher sees a rate move if the inflation outlook does not improve.
    • Speculator positioning in EUR is modestly long at +32,202 contracts, near the 10th percentile of its 52-week range, suggesting room for further long build if momentum picks up, but also potential for downside if the narrative shifts.

    NY session focus: With no major Eurozone data releases scheduled for today, the focus will be on US yields and risk sentiment as the New York session gets underway. Watch for any significant moves in the US 10Y yield which currently sits at 4.393%. Key levels to watch on EUR/USD are 1.1785 as initial resistance and 1.1740 as initial support. The trade that’s working is a cautious long in EUR/USD above 1.1750, but it’s at risk if the Dollar bid returns and risk aversion rises. The pain trade for EUR/USD would be a break below 1.1700, triggering a quick unwind of existing long positions.

  • Sterling Buoyed by Gilts, Braces for US Data – Monday, 11 May

    Where we are: GBP/USD currently trades at 1.3606, up 0.26% on the session, testing the upper end of its intraday range of 1.3570-1.3616. Cable has shrugged off earlier weakness in European equities to maintain a bid, though the DXY remains largely flat. The pair is attempting to break higher from Friday’s close, with the 1.3620 level representing immediate resistance.

    What’s driving it: The primary driver for Sterling remains domestic, with a modest steepening of the UK gilt curve supporting the currency. The UK 10Y yield has edged up to 5.001%, a 7bp rise, reflecting some recalibration after last week’s dovish repricing following the BoE’s hold. While the central bank is holding rates at 4.50%, the 8-1 vote split (Dhingra dissenting for a cut) highlights the internal debate; markets are sensitive to any indications of a shift in the MPC’s cautious, data-dependent stance.

    • The upward move in the UK 10Y yield (+7bp) is outpacing the US 10Y (+0.2bp), narrowing the US-UK 10Y spread to -61bp, a tailwind for GBP/USD.
    • Speculative positioning remains crowded short GBP, with net non-commercial positions at -63,908 contracts (15th percentile), increasing squeeze risk on any further positive surprises.
    • The drop in UK unemployment to 4.9% (as of January) continues to support the view that the labour market remains relatively tight, making the BoE more hesitant to cut rates aggressively.

    NY session focus: The primary focus for the New York session will be any read-across from US data on the UK outlook. Traders should watch for reactions to incoming releases, specifically for how the data influences the dollar and risk sentiment. Key levels to watch are 1.3570 as intraday support and 1.3620 as immediate resistance; a break above the latter could open the way to 1.3650. The working trade is buying dips in Cable against the backdrop of short positioning. The pain trade for GBP/USD is a hawkish repricing of Fed expectations combined with a deterioration in UK economic data.

  • Yen Under Pressure as Yield Spreads Widen – Monday, 11 May

    Where we are: USD/JPY is currently trading at 157.11, up 0.22% on the day, having traded in a tight 156.76-157.18 range so far. This marks a continuation of the recent upward trend, with the pair testing levels not seen since intervention zones were previously defended. The pair is up from Friday’s close, and appears to be ignoring the pre-NY session weakness in Nasdaq futures.

    What’s driving it: JGB yields are modestly higher, with the 10-year up 3bp to 2.513%, but this is being overshadowed by the widening US-Japan yield differential. The Bank of Japan’s slow normalisation bias continues to weigh on the Yen, particularly as markets increasingly price in further Fed hikes. With Ueda flagging a willingness to hike further only if the outlook tracks projections, the bar for hawkish BoJ surprises remains high. A further headwind comes from a strong bid for USD related to geopolitical stress.

    • The US-JP 10Y yield spread is at +188bp, providing significant upward pressure on USD/JPY.
    • Speculative positioning in JPY remains crowded short at the 13th percentile, raising the risk of a squeeze on any hawkish BoJ surprises or intervention.
    • Bloomberg reports Alphabet is planning a debut Yen bond sale as AI race accelerates.

    NY session focus: All eyes remain on the level of intervention from Japanese authorities. Keep a close eye on the 157.25 level as a key area of potential resistance, with a break above potentially opening the door to further upside. Conversely, a move below 156.75 would suggest intervention is having a meaningful impact. We expect dip-buying to remain a core feature of the order book. The US calendar is light today; the focus will be on risk sentiment from Wall Street open, and any headlines regarding Iran. The pain trade is a surprise intervention that triggers a violent short squeeze.

  • Loonie Still Under Pressure From BoC Easing Bias – Monday, 11 May

    Where we are: USD/CAD is currently trading at 1.3671, modestly lower on the day, but holding above the overnight low of 1.3661. The pair remains within yesterday’s range and continues to consolidate below the recent high of 1.3695. This level is key to watch as a break above could signal further upside.

    What’s driving it: The Canadian dollar remains pressured by the Bank of Canada’s dovish stance. While the overnight rate is steady at 2.75%, Macklem’s comments following the April decision highlighted tariff uncertainty and a softer growth path, keeping the easing bias alive. This contrasts with expectations that the Federal Reserve could keep interest rates elevated for longer given stronger-than-expected US labor data as evidenced by the US 10Y yield sitting 87bp above its Canadian counterpart. Headline CPI at 7.1% YoY is also a key factor preventing a more hawkish outlook despite the recent strong GDP MoM print of 2.6%.

    • BoC is holding rates steady at 2.75% but maintains an easing bias, citing tariff uncertainty.
    • Canada’s CPI remains above target at 7.1% YoY.
    • Speculative positioning is modestly short CAD, at the 83rd percentile, suggesting limited room for further short positions and vulnerability to a squeeze if sentiment shifts.

    NY session focus: All eyes will be on risk sentiment as US equities attempt to build on Friday’s gains. Key levels to watch in USD/CAD include 1.3660 as initial support and 1.3700 as immediate resistance, above which the path to 1.3750 opens. The trade that’s working is fading rallies in USD/CAD, betting on the BoC’s dovish stance. The trade at risk is being short CAD if oil prices continue to rally. The pain trade for USD/CAD would be a hawkish surprise from the BoC or a significant correction in crude oil prices.

  • AUD/USD Supported by Copper; RBA Rate Path Still Key – Monday, 11 May

    Snapshot: AUD/USD trades at 0.7240, up 0.28% on the session. The Aussie is finding support from rising copper prices, which are up 2.06%. Traders are awaiting clearer signals on the RBA’s rate path, with the next meeting on May 20th.

    • Watch for a break above 0.7249, today’s high, to signal further upside.
    • Squeeze risk is elevated given the crowded long positioning.

    Bias into NY: We are neutral to slightly bullish on AUD/USD. The RBA’s cautious stance, highlighted by Bullock’s assessment that inflation progress is ‘still uneven’, provides a floor. A break above 0.7250 could target 0.7280, while DXY strength remains a risk.