FX muted as markets turn attention to central banks
Markets have already begun to look past the Iran peace deal and toward tomorrow’s Federal Reserve meeting. That shift was clear across asset classes yesterday: the Nasdaq jumped 3% and oil fell 4%, yet the 10-year Treasury yield barely moved, which has kept the yield-divergence in play while price action in FX has been practically muted.
Bond markets, in particular, appear less willing than before to react mechanically to swings in Middle East tension. March’s oil shock seems to have prompted a broader reassessment of the Fed’s reaction function, with investors placing more weight on the underlying inflation trend than on short-lived energy spikes. The key question now is not whether oil can jolt markets for a day or two, but whether sticky price pressures will keep the Fed leaning hawkish.
That same focus on central banks is shaping moves well beyond the US. In Australia, the Reserve Bank stepped back after three straight rate increases, opting instead for a data-dependent pause. The move eased near-term pressure on local bonds and reinforced the case for Australian 10-year yields to slip below their US counterparts.
Asia is following a similar script, though with its own nuances. The Bank of Japan delivered a widely expected 25 basis-point hike, taking rates to 1%, but the yen barely responded. That muted reaction suggests markets had already priced in the move. For now, it leaves USD/JPY comfortably holding above 160.20, underscoring how even a nominal policy shift from Tokyo has yet to produce a decisive currency repricing.
CAD: Data points to bounce, Loonie lags
The US-Iran deal is finally on the table, with a formal signing expected on Friday in Geneva. Markets have welcomed the headline, but we would not mistake that for a clean reset in energy. Oil prices have leaned toward a deal for a few weeks, and this week’s selloff looks more like confirmation than capitulation. Even with Hormuz set to reopen, the heavy lifting comes next: clearing the tanker backlog, restoring disrupted flows and rebuilding inventories that have been drawn down hard for months. That process will take time. In other words, the deal reduces tail risk, but it does not guarantee a swift return to prewar oil pricing.
The rates market is telling a similar story. Canadian government bond yields have moved lower yesterday on the de-escalation headline, reflecting the view that easier energy prices will take some pressure off the inflation outlook. The message is straightforward: Canada is getting the relief rally, but the Treasury market is not fully buying a broader repricing story yet, especially in the short end of the yield curve. That leaves the US yield premium over Canada still doing a lot of the heavy lifting for USD/CAD.
Against this backdrop, Canada’s domestic data released yesterday were solid. Manufacturing sales rose 4.2% in April to C$77.1 billion, extending March’s gain and marking another strong month for the factory sector. Petroleum and coal product sales hit another record, food manufacturing also reached a new high, and Alberta and Quebec led the provincial advance. With shipments outpacing stock building, the inventory-to-sales ratio fell to 1.62, its lowest since January 2023.
The strength carried into distribution. Wholesale sales rose 0.6% in April to C$89.3 billion, with the building materials and supplies subsector posting a fourth straight monthly increase. Ontario and British Columbia did most of the lifting, offsetting declines elsewhere, while wholesale inventories rose 1.1% on the month as motor vehicles and construction-related goods flowed in.
Put together, the data strengthen the case that Canadian activity found firmer footing in Q2 after back-to-back GDP contractions. Yet USD/CAD continues to hover near 1.40. Domestic data have improved, but yield spreads remain decisively in the US dollar’s favor, still north of 130bp. As the chart below shows, the Canadian dollar has been the weakest performer in the G10 over the past three months, with the widening rate gap doing a big part of the damage.
MXN: Stability amid regional volatility
While the Colombian peso has surged on election optimism, the Mexican peso has done something far less dramatic this month: nothing much at all. Through June, MXN has stayed broadly flat, resisting the kind of momentum chase that often defines EM FX. That calm isn’t a sign of investor indifference. It is precisely the point. For global accounts, the peso remains one of the most dependable ways to earn carry without taking on the kind of violent price swings that plague much of Latin America.
A subdued political backdrop is a big part of the story. Mexico simply is not carrying the same political noise premium as Brazil, Colombia or Peru. With fewer domestic shocks to price and less headline risk to absorb, the peso trades with a lower-beta profile than many of its regional peers. That has kept volatility contained and preserved the currency’s appeal for investors who want yield, but do not want to get whipped around in spot.
The carry still does the heavy lifting. Mexico’s two-year yield advantage over the US, at roughly 320 basis points, remains a solid structural anchor. That cushion has helped keep USD/MXN pinned near 17.20, even as other Latin American currencies swing more freely. In a region that often trades on drama, the peso stands out for its calm.
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Calendar: June 15-19
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
