USD: Dollar rally takes a breather
After climbing for six straight sessions since the Fed meeting, the US DXY Index has finally paused. The index has gained roughly 2% over that stretch as investors moved back into the greenback. Markets now assign a high probability of a Fed hike by September, helped by sticky inflation, resilient income, and no clear break in the consumer. The dollar move may see some consolidation after the recent run, especially as front-end yields have eased as well. But unless upcoming data weaken more clearly, the higher-for-longer story remains intact.
Yesterday, fresh US data showed an economy that looks better on the surface, but less convincing underneath. First-quarter GDP was revised up to a 2.1% annualized pace from 1.6%, yet the upgrade was driven largely by volatile components, including trade and inventories, rather than a clean improvement in private domestic demand. Consumer spending was revised lower, which makes the headline growth number less impressive than it first appears. Recession concerns still look premature, but the data do not point to a booming economy either. For currency markets, the key point is simpler: growth is not weak enough to offset sticky inflation, so the US dollar still has support.
The consumer story is also more mixed than the headline suggests. Personal income rose 0.7% in May, above the 0.4% forecast, while personal spending also increased 0.7%, showing that households are still spending. Real personal spending rose 0.3%, but April-May momentum remains softer than a single monthly print implies. Price pressures remained firm, with the PCE price index up 4.1% y/y and core PCE at 3.4% y/y, leaving the Fed with little evidence that inflation is cooling fast enough. So the consumer is not cracking, but consumption is no great shakes either.
Business demand sent a cleaner signal beneath the noisy headline. Durable goods orders fell 4.5%, matching expectations and largely reflecting weakness in transportation. Excluding transportation, orders rose 1.3%, above the 0.6% forecast, while core capital goods orders rose 1.6%, suggesting underlying investment demand remains more resilient than the headline decline implies. That keeps the broader data mix awkward for markets. Growth quality is not great, but price pressure and pockets of demand are still firm enough to keep rate-cut hopes contained.
CAD: Pressure eases near 1.42
USD/CAD is taking a pause after four straight weeks of gains, with the pair slipping from a one-year high of 1.4248 toward 1.4180. The broader backdrop still favours the US dollar: Fed pricing remains hawkish, the US-Canada rate spread is wide, and CUSMA uncertainty is still hanging over the Canadian outlook ahead of the July 1 review deadline. Canada’s latest inflation surprise was mostly energy-led, while core measures stayed close to 2.1%, giving the Bank of Canada little reason to match the Fed’s firmer bias. The result is a Loonie that remains vulnerable, even if the latest USD/CAD rally is losing some immediate momentum.
The pullback also reflects some digestion after a fast move higher. USD/CAD cleared the old 1.40 breakout zone quickly, and the move above 1.42 looked stretched on a short-term basis. Spot is still well above the 20-day moving average near 1.4009, with the 50-day, 100-day and 200-day averages clustered much lower around 1.38, so the broader trend remains on hold. Still, the failure to hold near 1.4250 suggests buyers may need another catalyst before pushing toward 1.43.
Technically, the first support zone sits around 1.410, followed by the 20-day average near 1.4010 and then the old breakout level at 1.40. Holding above that area would keep the pullback corrective and preserve the bullish structure. Next week could bring sharp moves, with month-end flows, Canada Day liquidity effects, the CUSMA deal review deadline, and April advance GDP all landing in a short window.
MXN: Banxico holds, Peso range tested
USD/MXN has pushed higher this week as the stronger dollar challenged the peso’s low-vol carry profile.
Banxico left rates unchanged at 6.50%, as expected, but the accompanying statement reinforced a cautious message rather than signaling the next step toward easing. The Board acknowledged the recent improvement in inflation but also highlighted persistent core price pressures, inflation expectations still above target, and peso depreciation as an upside risk. The message from both the statement and post-meeting communication was that policy will remain restrictive for some time, helping preserve Mexico’s carry advantage even as the easing cycle appears to have ended.
Domestic fundamentals also remain supportive. April retail sales and activity data surprised to the upside, while early-June inflation slowed more than expected. The challenge for the peso is increasingly coming from abroad. US front-end yields have moved higher and markets are assigning a high probability to another Fed hike by September. That repricing has reduced the appeal of dollar-funded carry trades and narrowed the relative support that previously helped the peso outperform most EM peers.
The peso still screens well compared with higher-beta LatAm currencies. Banxico’s pause leans slightly more hawkish than dovish, inflation is moving lower only gradually, and policymakers still expect inflation to return to target only in 2027. Those factors should limit downside pressure on MXN relative to peers. However, the global backdrop has become less forgiving. As US yields move higher and the dollar regains momentum, USD/MXN becomes more sensitive to external drivers than domestic ones. The peso’s carry remains attractive, but compressed volatility leaves less room for complacency if the range finally gives way.
Technically, the pair has moved into a more important zone. USD/MXN is trading near 17.50 after briefly touching 17.66, meaning the long-standing 17.56 cap has been tested but not yet decisively broken. Spot sits above the 20-day average at 17.37, the 50-day at 17.35, and the 100-day at 17.44, reinforcing a firmer near-term bias. A sustained break above 17.56-17.66 would expose the 200-day average near 17.78. Conversely, a move back below 17.44 and then the 17.37-17.35 support zone would suggest another failed topside breakout and a return to the broader range.
Market snapshot
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Calendar: June 22-26
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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.
