This week saw a broad strengthening of the US Dollar, which exerted significant downward pressure on several major currencies and commodities. The Canadian Dollar (Loonie) slid to a fresh 14-month low against the US Dollar, capping a run in which the Greenback closed higher in six of the last seven weeks. Notably, the Loonie has decoupled from its traditional correlation with crude oil and is now more closely tracking gold prices, which have fallen for six consecutive weeks. The primary driver of the Loonie's weakness is the widening policy gap between the Federal Reserve, which held rates at 3.75% and signaled a possible hike in 2026, and the Bank of Canada, which remains on hold at 2.25% amid a mixed domestic economic picture. Speculative short positions on the Canadian Dollar have climbed to their highest in months as a result [1].
The Euro also weakened, falling to a multi-week low near 1.1400 against the US Dollar despite the European Central Bank (ECB) delivering its first interest rate hike since 2023. The ECB's move was interpreted as defensive, prompted by surging energy costs and stagflationary pressures, rather than economic strength. The ECB raised its deposit rate while simultaneously cutting growth forecasts and raising inflation projections. Markets viewed the ECB's guidance as 'one-and-watch,' in contrast to the Fed's firmer hawkish stance, leaving the Euro unable to rally. The US Dollar Index remains at a 13-month high, reinforcing the Greenback's dominance [2].
The Australian Dollar was similarly pressured, dropping to the 0.7000 handle against the US Dollar. The Reserve Bank of Australia (RBA) left its cash rate unchanged at 4.35% but maintained a hawkish tone, citing persistent inflation driven by higher fuel and commodity prices. Despite this, the Aussie could not capitalize due to broader risk-off sentiment, weak Chinese demand, and a strong US Dollar. Upcoming domestic data, including May's CPI and employment report, may provide the Aussie with a chance to trade on local fundamentals, but the currency remains tethered to US data and sentiment [3].
Gold prices ended the week down close to 1.5%, marking the sixth straight week of lower or flat closes, even as geopolitical risks remained elevated due to ongoing Middle East conflict. The metal's decline is attributed to rising US real yields and expectations of higher Fed rates, which increase the opportunity cost of holding non-yielding assets like gold. The market's trust in the Fed to contain inflation has turned hot inflation data into a bearish signal for gold. Next week's US GDP and PCE data are expected to be pivotal for both gold and Dollar-sensitive assets [4].
Across all markets, the upcoming US economic data releases—particularly the third estimate of Q1 GDP and the May PCE Price Index—are seen as key catalysts. A hot PCE print would likely reinforce the US Dollar's strength and further pressure other currencies and gold, while a downside surprise could offer temporary relief [1][2][3][4].
CONCLUSION
The US Dollar's strength, underpinned by the Fed's hawkish stance and rising real yields, has weighed heavily on the Canadian, Euro, and Australian currencies, as well as gold. Market participants are now focused on upcoming US economic data, which will likely determine the next direction for these assets. Until then, the prevailing trend favors the Greenback and continued pressure on its counterparts.