PPI leaves Dollar bulls waiting

USD: PPI leaves Dollar bulls waiting

July PPI gave the dollar another inflation print that was hard to chase higher. Final demand prices were flat on the month, below the 0.2% expected, while the annual rate slowed to 4.7%. Core PPI rose 0.2%, also softer than forecast, though the measure excluding food, energy and trade services rose 0.4%. The broader message is that pipeline inflation is cooling, even if services costs have not fully rolled over.

The PPI report also matters for PCE, and the read-through was mostly mild. Personal consumption PPI rose just 0.1%, while several components tied to the Fed’s preferred inflation gauge came in softer. That follows a CPI report where headline inflation eased to 3.4% y/y and core CPI slowed to 2.5%, with a 0.2% monthly core print. Together, CPI and PPI have reduced the urgency for a September hike.

Yet the dollar has not really broken. DXY is near 99.9, roughly flat on the week and still above the post-payrolls low near 99.5. The two-year Treasury yield has slipped toward 4.17%, but the long end remains sticky after weak 10-year auction demand pushed the stop-out yield to 4.683%. That mix helps explain the dollar’s resilience: front-end Fed pricing is softer, but term premium and supply concerns are keeping the rates backdrop from turning fully bearish.

The Fed split also limits the downside. Softer inflation gives the hold camp more room, but hawkish officials can still point to services pressure and elevated long-end inflation risk. Technically, 99.50 is the near-term floor for DXY, with a break opening 99.20, while a hawkish Fed pushback or renewed Hormuz stress could bring 101 back into view. For now, the dollar is rangebound, with the case for aggressive hikes fading but the case for a deeper selloff not yet sealed.

CAD: Stabilizing through trade fog

USD/CAD is trading near 1.3945, its lowest level since early June, as the Loonie continues to benefit from a sharp shift in rate spreads. The US-Canada two-year yield gap has narrowed to roughly 121bp, down from about 145bp in late July, as softer US data pulled Treasury yields lower while Canadian yields held up better. Canada’s July jobs report helped drive that move, with employment rising 75,000 and unemployment falling to 6.4%, its lowest level in two years. That keeps the recent CAD rally tied more to relative rates and domestic momentum than to oil alone.

The Canadian macro backdrop has also improved at the right time. Job gains were strong, net exports have turned into a Q2 growth support, and June’s trade surplus widened to C$3.86bn as exports rose for a fifth straight month. Real energy exports have also been rising, but the recovery story is broader than commodities. Services hiring and firmer domestic activity make the Loonie’s move look more durable than a simple oil-linked rally.

The August 19 tariff deadline is now the main near-term risk. Canada and the US are reportedly trying to reach an interim deal before a new 50% tariff on roughly US$20bn of Canadian exports takes effect. The possible framework includes movement on US alcohol, auto tariffs and dairy quotas, though broader sector relief remains harder to secure. A deal would likely extend CAD’s gains, while tariff escalation could quickly reverse the move.

Technically, the break below 1.40 is meaningful after months of support above that level. USD/CAD has fallen from its June peak near 1.4234 and now has room to test the 1.37–1.38 zone if trade headlines improve and US yields stay under pressure. Positioning is also helping, as crowded CAD shorts continue to unwind. But with one-month volatility still subdued, markets may be underpricing how binary the August 19 deadline could be.

MXN: Peso tests the Seventeen line

USD/MXN is trading near 17.06, its strongest level in roughly two years and beyond the pre-Sheinbaum election area from May 2024. The pair has fallen about 3.2% from its June 24 peak near 17.61, helped by a softer dollar, in-line US CPI and steady global risk appetite. Mexico’s carry advantage remains the anchor, with the local two-year yield around 7.26% versus the US two-year near 4.18%. That spread has narrowed, but it is still wide enough to keep MXN attractive.

Banxico has reinforced that support. The central bank held rates at 6.50% for a second consecutive meeting and signaled little urgency to restart easing. Headline inflation is near target at 3.12%, but core inflation near 3.95% and services inflation above 4% keep policymakers cautious. By pushing the expected inflation-target convergence to Q4 2027, Banxico gave investors another reason to stay paid in pesos.

The domestic backdrop is also helping. Mexico’s Q2 GDP rebounded 1.5% q/q after the Q1 contraction, supported by strong exports. Reserves have climbed to about USD257bn, adding a solid external buffer. Mexico’s role in the US AI infrastructure buildout is becoming a deeper source of support, as data-center and tech-linked exports strengthen the external account. That gives the peso a stronger base than carry alone.

The technical picture remains tilted in MXN’s favor. USD/MXN has broken through 17.40, 17.20 and 17.10, leaving 17.00 as the next major level. Positioning is the main caution, with leveraged funds holding their largest peso longs since December, so any negative catalyst could trigger a quick unwind. Hormuz headlines, Banxico guidance and North American trade risks remain the key variables, but as US inflation stays contained, Banxico stays patient and risk sentiment continues to improve, the peso can keep pressing toward 17.00.

Market snapshot

Table: Currency trends, trading ranges & technical indicators

Key global risk events

Calendar: August 10 – 14

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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.