Three-Day Reprieve For Canada From US Tariffs

The US dollar remains on the defensive. It is lower against the G10 currencies but the Australian dollar, which is nursing a small loss. By a narrow margin, the Japanese yen is leading pack, though the greenback has held above JPY159 in Europe. The Canadian dollar is firm and testing yesterday’s high after a last-minute postponement of the US tariffs for three days pending continued talks. 

The rout in tech stocks rippled through most of the Asia Pacific bourses and Europe’s Stoxx 600 is extending its losing streak for a sixth consecutive session today. US index futures are trading softer. Oil prices are firmer as the UAE cut economic relations with Iran, and many see this as a new escalation. October WTI is rising for the fourth consecutive session and is higher for the ninth session of the past ten. 

Prices 

G10

• Summer doldrums hit the euro yesterday and confined it to about 20-tick range. Still, it approached but held above Monday’s low (~$1.1565), which appeared constructive, even though the momentum indicators are stretched. The euro turned bid in the Asia and follow-through buying lifted a little above $1.1610 in Europe. Options for 1.7 bln euros at $1.1600 expire today. Monday’s two-month high was closer to $1.1615 and the 200-day moving average is around $1.1630. 

• The dollar reached almost JPY159.80 yesterday, its highest level against the yen since the intervention at the end of last month. The JPY160 level is taking on greater psychological significance. The greenback is trading heavier today and approached JPY159. Monday’s low was around JPY158.85, and before last weekend, it found bids near JPY158.60. 

• Sterling recovered from the decline spurred by the soft UK jobs report. It retested the $1.3520 low in early North American turnover and recovered to $1.3550, stopping a few hundredths of a cent below the session high recorded in the Asia Pacific session. It is better bid today and tested the $1.3565 area. The two-month high set Monday was slightly above $1.3570. Above there, $1.3590 corresponds to the (61.8%) retracement of sterling’s losses since the year’s high was recorded in late January (~$1.3870). 

• The US dollar gradually worked higher yesterday against the Canadian dollar as the brinkmanship of the trade negotiators warranted caution. The greenback, which had recorded two-month low on Monday (~CAD1.3845), reached CAD1.3910 yesterday. No breakthrough in the negotiations was announced during the North American session. The US two-year premium over Canada rose for first time in three sessions. A three-day delay in the tariffs was announced. The White House says a tentative deal was reached, while Canada’s Prime Minister Carney said that while important progress was made, more work needs to be done. Details are elusive. Still, the US dollar has returned toward yesterday’s low (~CAD1.3860). Monday’s low and the 200-day moving average are a little below CAD1.3850. And the (61.8%) retracement of the greenback’s rally from May 1 (~CAD1.3550) is slightly above CAD1.3815. 

• The Australian dollar straddled the $0.7100 area in quiet turnover yesterday, well within Monday’s range. It was sold to almost $0.7065 today, a new low for the week. Monday’s high of almost $0.7130 overshot by a little the (61.8%) retracement objective of the losses from the May 6 four-year high (~$0.7280). A move above $0.7090-$0.7100 would improve the technical tone. 

EM 

• The dollar settled above its five-day moving average against the Mexican peso yesterday for the first time since July 27(~MXN17.05 today). The risk-off mood, exemplified by the roughly 0.6% loss in the S&P 500 and twice that for the NASDAQ composite, arguably weighed on the peso. It is testing MXN17.03 in Europe. Yesterday’s low was slightly lower. A near-term base may have been forged a little below MXN16.98. Initial resistance may be near MXN17.09. The Colombian peso re-opened after Monday’s holiday and it was easily the strongest currency in the world, rising almost 1.3% against the US dollar, helped by stronger than expected growth in Q2 (1.3% quarter-over-quarter after 0.6% in Q1). President De La Espriella cited private sector estimates of the August 10 earthquake damage at about COP30 trillion (~$9.6 bln). It activated the first tranche of a World Bank disaster loan of $200 mln. International aid has been in excess of $1.3 bln to date.

• The greenback reached a three-day high against the offshore yuan yesterday, near CNH6.7480. It has not traded above CNH6.75 since August 7. The dollar has traded on both sides of yesterday’s range but is holding above Monday’s low near CNH6.7375. The PBOC set the dollar’s fix lower today in what appears to be an unusually aggressive fix 0.08% lower (CNY6.7854 vs. CNY6.7905 yesterday). It was the largest decline in a month. The roughly three-and-a-half-year low fix was on Monday at CNY6.7873. Yet inexplicably the Bloomberg survey showed an average forecast of CNY6.7432 today. 

• The Indian rupee continues to trade heavily despite reports of continued central bank dollar sales. The greenback rose to INR95.7637 today, a new high for the month. A move above INR95.80 sets up a test on INR96.00. 

Other Markets

• The slide in US equities weighed on Asia Pacific trading today. The regional markets but Hong Kong and New Zealand fell. Europe’s Stoxx 600 is extending its losing streak for the sixth consecutive session. The S&P and Nasdaq futures are slightly lower. 

• Benchmark 10-year yields rose 2-6 bp in Asia and Europe (excluding China), while the US Treasury yield and Canada’s bond yield slipped by around two basis points. Asia Pacific yield fell today, led by a 5 bp decline in Japan’s benchmark. European yields are mostly 1-2 bp higher. The 10-year Treasury yield is practically flat at 4.70%. The US will sell $16 bln of 20-year bonds today. 

• Gold posted an ostensibly bearish outside down day by trading on both sides of Monday’s range and settled below its low. It made a marginal new low today slightly below $4325 before rebounding in Europe to almost $4370. Silver took out Monday’s high by less than a cent yesterday and then was pressed through Monday’s low (~$64.55) to approach last Friday’s low (~$63.50). It has recovered after falling to $62.45 today. It is trading near $63.40 late in the European morning. 

• October WTI briefly poked above $85 yesterday for the first time since July 24. It has been pushed to about $85.40 today amid news that the UAE is cutting all economic ties with Iran, claiming that Tehran fired ballistic missiles at it. A line drawn from the contract high in mid-May ($91.25) and the July high (~$88.05) comes in today near $86.85. 

Data

• The US highlight today are the minutes from last month’s FOMC meeting. Recall that three officials dissented in favor of an immediate hike. The statement was terse, and the minutes are unlikely to be much better. Even before the task forces have completed their assignments, the new communication style is being implemented. 

• Earlier this month, the eurozone reported that its seasonally adjusted trade balance swung back into surplus in June for the first time in four months. The current account surplus through May is running on average about 2 bln euros more a month than in the first five months of 2025. In June, it rose to 35.1 bln euros from 31.2 bln in June 2025. The eurozone’s current account surplus in 2025 was about 1.7% of GDP and the ECB expects it to slip to 1.3% this year, the same as the IMF. 

• The UK’s headline CPI accelerated in July. The 0.3% rise followed 0.1% in June, and the year-over-year rate rose to 2.9% from 2.6%. Service inflation rose 3.4% year-over-year, slightly slower than June’s 3.6% pace. It is moving gradually in the right direction and the high for the year was in March at 4.5%. Core inflation was steady at 2.6%. The chances of a change in policy next month, according to the swaps market slipped after the report. The market still has a quarter-point hike fully discounted before the end of the year. 

• Australia’s wage price index rose by 0.8% in Q2 for s 3.2% year-over-year rate. The Q1 pace of 3.3% was revised to 3.2%. It stood at 3.4% in Q4 25. 

• With Japan’s disappointing Q2 GDP in hand, today’s core machinery orders had little impact. They recovered by 9.7% after falling 12.4% in May. Recall that the GDP figures showed the third quarterly decline (annualized) in private non-residential investment in the past four quarters. Today’s report may trim that estimate but it still was a drag.