The global currency markets are experiencing heightened volatility as traders react to a surge in oil supply and a hawkish outlook from the US Federal Reserve. The Canadian Dollar (CAD) has weakened against the US Dollar (USD), with USD/CAD trading around 1.4230, halting its winning streak that began on June 10. This depreciation comes despite rising market expectations of Fed interest rate hikes, with the CME FedWatch tool indicating an 83.1% probability of rate hikes by the end of December, following Federal Reserve Chairman Kevin Warsh's firm stance on taming inflation and maintaining economic stability [1].
Meanwhile, the New Zealand Dollar (NZD) is also under pressure, trading near its lowest level since November 25, 2025, with spot prices around 0.5640-0.5635. The USD Index (DXY) reached a fresh high since May 2025, driven by the Fed's hawkish pivot and risk aversion stemming from a tech-driven selloff. Nine of the Fed's 19 committee members believe further rate hikes are necessary to combat persistent inflation [2].
A significant market-moving factor is the rapid improvement in global oil supplies following breakthrough US-Iran peace efforts. US Energy Secretary Chris Wright reported that approximately 20 million barrels of oil exited the Strait of Hormuz within a 24-hour period, marking a return to normal operational flows. Shipping data confirms that three previously stranded tankers carrying 5 million barrels of crude exited the Gulf under an interim diplomatic deal. Additionally, a temporary US waiver allows the purchase of already-loaded Iranian oil, further expanding available supply [1]. Source 2 adds that oil prices have fallen to their lowest levels since before the US-Iran war, with a 60-day sanctions waiver authorizing the production, delivery, and sale of Iranian crude oil, petroleum, and petrochemical products, easing supply concerns and weighing on oil prices [2].
Lower crude prices are negatively impacting the Canadian economy, as Canada is the largest exporter of crude oil to the United States. Canada's 10-year government bond yield fell to a three-month low of 3.36% in late June, reinforcing expectations that the Bank of Canada will refrain from raising interest rates for the rest of the year [1]. For New Zealand, the Reserve Bank of New Zealand's hawkish shift could support the NZD and limit losses, with the RBNZ indicating that the Official Cash Rate (OCR) could reach roughly 2.85% by the end of this year, implying up to three rate hikes [2].
Market participants are now awaiting the release of the US Personal Consumption Expenditures (PCE) Price Index. Headline inflation is expected to rise to 4.1% year-over-year in May from April's 3.8%, while core PCE is projected to edge higher to 3.4% year-over-year [1]. This data release is seen as pivotal for further positioning in both USD/CAD and NZD/USD pairs, with investors potentially moving to the sidelines ahead of the announcement [2].
CONCLUSION
Currency markets are being driven by a combination of hawkish Fed signals, surging global oil supply, and upcoming US inflation data. The Canadian Dollar and New Zealand Dollar are both under pressure from falling oil prices and strong USD demand, though central bank policy shifts may provide some support. The imminent US PCE release is expected to be a key determinant for future market direction.