A confluence of geopolitical tensions, energy supply disruptions, and shifting expectations for US Federal Reserve policy has led to notable volatility across major currency pairs and commodities ahead of the release of the FOMC Minutes. The Canadian Dollar (CAD) strengthened modestly after US President Donald Trump announced a three-day pause on 50% tariffs against Canada following negotiations with Canadian Prime Minister Mark Carney, while rising crude oil prices—reaching a nearly three-week high amid the US-Iran standoff over the Strait of Hormuz—further supported the commodity-linked Loonie. The USD/CAD pair traded around 1.3880, with downside pressure evident as traders awaited the FOMC Minutes for further policy cues. CME Group's FedWatch Tool indicated a 68% probability of a Fed rate hike by year-end, though recent US data showing cooling inflation and slowing consumer spending has tempered immediate rate hike expectations [1].
Gold (XAU/USD) rebounded from its weekly low, climbing above $4,350 as the US Dollar softened and traders grew cautious ahead of the FOMC Minutes. The ongoing Middle East crisis, particularly the US-Iran standoff, has fueled inflation concerns through higher energy prices, with the 30-year US bond yield reaching its highest level since June 2007. ING analysts noted that the US Dollar index (DXY) has rebounded from range lows, supported by higher energy prices and rising Treasury yields, which could put a September Fed hike back on the agenda. Persistent geopolitical uncertainties and the US's firm stance on Iran—President Trump confirmed no talks with Iran and maintained a naval blockade—have kept the geopolitical risk premium elevated, supporting both crude oil and the US Dollar [2].
The Australian Dollar (AUD) weakened for a second day, trading around 0.7080, despite hawkish remarks from RBA Deputy Governor Andrew Hauser, who emphasized the need for tighter policy if inflation fails to cool. Australia's Wage Price Index rose 3.2% year-on-year in Q2 2026, matching expectations but marking the weakest growth since Q4 2024. UOB analysts maintained an upside risk for AUD, targeting 0.7150, but noted that only a breach of 0.7070 would negate this view. The downside for AUD/USD may be limited as the US Dollar weakens amid reduced expectations for a September Fed rate hike—FedWatch Tool now shows a 35% probability, down from 47% a month earlier. The Fed's last meeting saw three officials dissent in favor of a hike, increasing market focus on the upcoming Minutes for further insight [3].
Silver (XAG/USD) extended its decline by 0.5% to near $63.00, pressured by fears of prolonged inflation due to continued energy supply disruptions. WTI oil traded close to a two-week high at $85.11. Higher oil prices have de-anchored global inflation expectations, raising concerns about potential rate hikes from central banks and diminishing the appeal of non-yielding assets like silver. President Trump reiterated that there are no talks with Iran, suggesting energy supply risks will persist. Investors are awaiting the FOMC Minutes, though no major policy guidance is expected as Chairman Kevin Warsh has provided no forward guidance. The CME FedWatch Tool currently shows expectations for the Fed to leave rates unchanged in September [4].
CONCLUSION
Geopolitical tensions and energy supply disruptions are driving volatility across currencies and commodities, with the US Dollar, gold, and silver all reacting to shifting inflation and rate hike expectations. The market remains highly sensitive to developments in the Middle East and upcoming FOMC Minutes, which are expected to provide further clarity on the Fed's policy path. Until then, risk sentiment and commodity prices are likely to remain key drivers of market direction.