On Wednesday, the US Dollar (USD) softened against major currencies, driven by weaker US employment data and shifting oil prices. The USD/CAD pair traded around 1.4040, down 0.14% on the day, as the Canadian Dollar (CAD) benefited from a rebound in oil prices following Yemen's Houthis claiming responsibility for an attack on a Saudi vessel in the Red Sea, which temporarily raised concerns over global energy supplies [1]. However, hopes for a diplomatic breakthrough in the Middle East, with the United States, Iran, and Oman reportedly close to an interim agreement to reopen the Strait of Hormuz, limited the upside in oil prices. The proposed 60-day arrangement could be announced as early as Wednesday, according to US Treasury Secretary Scott Bessent [1][2].
The US Dollar also faced pressure from disappointing economic data. The ADP Employment Change report showed private payrolls increased by 44K in July, missing expectations of 70K and slowing from 98K in June [1][2]. This followed weaker Job Openings and Labor Turnover Survey (JOLTS) data and a decline in Factory Orders earlier in the week, reinforcing expectations that the Federal Reserve (Fed) may adopt a more accommodative stance [1][2]. The CME FedWatch Tool indicated that the probability of a September Fed rate hike fell to around 56% from 67% a day earlier [2]. Despite this, Fed officials, including Kansas City Fed President Jeff Schmid, Philadelphia Fed President Anna Paulson, and Minneapolis Fed President Neel Kashkari, highlighted persistent inflation risks and suggested that policymakers could focus on restoring price stability, with Kashkari stating, "now is the time to start slowly moving interest rates up" [1][2].
The Japanese Yen (JPY) also edged higher, with USD/JPY trading around 157.45, down 0.2% on the day, as easing tensions in the Middle East and weaker US labor market data weighed on the USD [2]. The US Dollar Index (DXY) traded around 99.66, down 0.2% on the day [2]. Strategists at BNY Mellon noted that recent coordinated intervention has "bought time but hasn’t materially increased foreign JPY holdings," and that rebuilding exposure would require credible domestic follow-through such as Bank of Japan tightening, fiscal consolidation, and structural reform [2].
Analysts at Scotiabank observed that the CAD has underperformed its peers, remaining "effectively unchanged since the day of the FOMC whereas the G10 currencies have generally strengthened," with the JPY "clearly been boosted by intervention," and the NZD and AUD both having "picked up more than 1%" [1]. Scotiabank attributed CAD’s underperformance to "trade uncertainty and a Bank of Canada that appears firmly in neutral," but suggested that "some pick up in the currency appears overdue" [1].
Market participants are now awaiting the release of the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) and Friday’s US and Canadian employment reports for further direction on currency pairs [1][2].
CONCLUSION
The US Dollar weakened amid softer employment data and shifting oil prices, with the Canadian Dollar firming and the Japanese Yen edging higher. Market expectations for a September Fed rate hike have diminished, though Fed officials remain cautious about inflation risks. Investors are closely watching upcoming economic releases for further guidance on currency movements.