A pause in hostilities between the United States and Iran triggered a sharp decline in Oil prices, with West Texas Intermediate (WTI) falling more than 7% and trading near $83.70 per barrel according to one source [1], while another source reports WTI at $82.70 per barrel after an intraday low of $81.28 [2]. This drop in Oil prices improved global risk sentiment, leading to a relief rally across stock and bond markets [1][2]. The decline in Oil has eased concerns about additional inflationary pressures and slightly reduced expectations of an immediate Federal Reserve rate increase, supporting risk-sensitive currencies such as the Australian Dollar [1].
AUD/USD retreated to 0.6990 on Monday after briefly rising as high as 0.7011 during the Asian session, but remained up from Friday's close [1]. Technical analysis shows AUD/USD trading at 0.6988, held between the 100-period SMA at 0.6969 and the 20-period SMA at 0.6990, with an RSI near 49 indicating a neutral tone [1]. Investors are awaiting key events including the Australian Consumer Price Index (CPI) release on Wednesday and a speech from Reserve Bank of Australia Governor Michele Bullock on Tuesday, which could influence expectations for future rate moves. Previous headline CPI declined 0.7% MoM, with annual inflation at 4.0%, and Trimmed Mean CPI up 0.4% MoM and 3.6% YoY [1]. Hotter inflation figures could strengthen the Aussie, while softer data may pressure AUD/USD [1].
USD/CAD edged higher to 1.4114 after bouncing from an intraday low of 1.4070, as the US Dollar rebounded following a bearish gap at the week's open [2]. Despite elevated Oil prices, the Canadian Dollar received limited support, with USD/CAD mainly driven by US Dollar flows and monetary policy expectations [2]. Technical analysis indicates USD/CAD holds a constructive bias above the 50-day and 100-day SMAs at 1.4030 and 1.3883, respectively, and is testing resistance at 1.4120. RSI around 54 and improving MACD suggest waning downside pressure [2]. A break above 1.4120 could target the June high near 1.4250, while 1.4030 and 1.3883 serve as key support levels [2].
Market participants are closely watching the Federal Reserve's interest-rate decision following its July 28–29 meeting. The Fed has maintained its target range at 3.50%–3.75% since the start of the year, and while most analysts expect another hold, the decision is considered increasingly close due to recent inflation and energy price spikes [1]. The sharp pullback in Oil may reduce the urgency for a hike, but Chair Kevin Warsh could maintain a hawkish stance and leave the door open to future tightening [1]. US Personal Consumption Expenditures (PCE) inflation later in the week will also provide further insight into underlying inflation [1].
According to a table of daily currency performance, the US Dollar was strongest against the British Pound (+0.18%) and gained 0.15% against the Canadian Dollar, while it lost 0.16% against the Australian Dollar [2].
CONCLUSION
The pause in US-Iran hostilities and subsequent Oil price drop have improved risk sentiment, supporting currencies like the Australian Dollar and influencing USD/CAD dynamics. Markets are now focused on upcoming inflation data and central bank decisions, particularly from the Federal Reserve, which could shape near-term currency movements. Technical indicators suggest neutral-to-positive momentum for both AUD/USD and USD/CAD, with key support and resistance levels in play.