The Morning Update

The USD advances, oil prices firm, equity markets are down, US yields rise as US-Iran turmoil keeps investors cautious. The U.S. dollar advances in early trading, holding near a two-week high as escalating U.S.-Iran hostilities push oil prices higher, adding to inflation concerns and lifting Treasury yields, while markets now price roughly a 70% chance of a September Fed rate hike. Global equity markets are lower as the combination of elevated energy prices, rising bond yields and renewed geopolitical uncertainty weighs on risk sentiment, with investors increasingly concerned that persistent inflation could keep monetary policy tighter for longer. Elsewhere, gold and Bitcoin prices weaken as rising Treasury yields and a firmer U.S. dollar weigh on demand, with expectations for further Fed tightening adding pressure across both assets. Today’s economic calendar includes U.S. ADP Employment Change, Canadian labour productivity, the Bank of Canada interest-rate decision and press conference, U.S. factory orders, EIA crude oil inventories and the Federal Reserve Beige Book.

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News Headlines. 10-year US Treasury yield hits highest level since November 2023 as global bond sell-off continues. Iran says two tankers have hit Hormuz naval mines, attacks regional targets amid US strikes. Zelensky says airlines should avoid Russian airspace as Ukraine expands drone operations. China's Xi keeps Iranian president at arm's length weeks ahead of Trump summit. US House votes to avoid government shutdown amid GOP hard-liner resistance. Chevron will expand Venezuela operations, doubling production through $7 billion investment. From street names to supply chains, Canadians pull away from the US as the rift grows. TSX futures steady ahead of the Bank of Canada's rate decision.

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In currency markets. Against the USD, the NZD is the clear underperformer, falling sharply after the RBNZ raised rates by 25bp to 2.75% but delivered a more cautious outlook than markets expected. The Bank lowered its projected rate path and highlighted weak growth and spare capacity, prompting investors to scale back expectations for further aggressive tightening, while a firmer U.S. dollar and deteriorating global risk sentiment added to the pressure across G10 currencies.

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In commodity markets. WTI +0.03% | Nat Gas +1.34% | Gold -0.87% | Silver -1.54% | Copper -0.81% | Palladium -1.02% | Coffee -1.92% | Cocoa -0.33% | Soybeans -0.99% | Wheat -1.25%

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CAD remains under pressure, weakening toward 1.3950 as rising expectations for a September Fed rate hike and elevated U.S. yields continue to favour the U.S. dollar despite stronger oil prices. Attention turns to today’s BoC decision, where rates are widely expected to remain unchanged at 2.25%, although policymakers may adopt a more cautious tone as escalating Canada-U.S. trade tensions cloud the outlook despite continued expansion in the manufacturing sector.

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EURCAD edges slightly higher as Canada-U.S. trade uncertainty continues to weigh on CAD, despite elevated oil prices. Expectations for an ECB rate hike, alongside a BoC expected to remain on hold at 2.25% today, point to a narrowing interest-rate differential and remain supportive of a firmer EURCAD in the short term.

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EUR extends its decline toward two-week lows around 1.1550 as escalating U.S.-Iran tensions and rising expectations for a September Fed rate hike support the U.S. dollar. Despite markets pricing a near-95% probability of an ECB rate hike this month, the move is largely priced in, while sharply higher oil prices are adding to concerns over the Eurozone growth outlook.

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GBPEUR holds steady in early trading as expectations for tighter policy from both the BoE and ECB provide support to their respective currencies. UK rate expectations have firmed, with markets pricing around 32bp of BoE tightening by year-end, while a September ECB hike is also heavily priced in, leaving the current UK interest-rate advantage supportive of GBP but limiting near-term direction in the cross.

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GBP weakens through 1.3500 as rising U.S. yields, escalating U.S.-Iran tensions and expectations for a September Fed rate hike support the U.S. dollar. The downside is partially cushioned by firmer BoE tightening expectations, with Catherine Mann favouring an early rate hike to contain inflation risks and markets pricing further tightening this year. Attention turns to U.S. employment data ahead of Friday’s nonfarm payrolls report.