The below key drivers are likely to impact investor risk sentiment and FX markets in August:
- Oil prices and the conflict between the United States and Iran are keeping inflation concerns alive, supporting currencies like the Canadian dollar while adding pressure on energy importers like Japan.
- Central bank decisions and interest rate expectations remain in focus, with US inflation data and a gathering of central bankers in Jackson Hole likely to set the tone.
- A weaker US dollar and the joint move by Japan and the United States to buy yen are impacting Asia-Pacific currencies, though wide interest rate gaps still cap gains.
EUR | Euro
The euro has climbed above US$1.15 on the back of a softer US dollar, with an expected European Central Bank rate rise in September offering further support through a quiet August.
Like many currencies, the euro has benefitted from the broadly weaker US dollar seen in late July and early August. EUR/USD bottomed out at around 1.1325 on July 24th before pushing higher as August began. The pair now has a foothold above 1.15 and could climb further this month, given new Federal Reserve Chairman Kevin Warsh’s apparent reluctance to raise interest rates for now.
Markets are anticipating the European Central Bank to lift rates at its September 10th policy decision, which analysts are widely tipping to be its only increase for the rest of the year. Eurozone inflation ticked up to 2.9% year-on-year in data released July 31st and could pass 3% in coming months, driven largely by rising energy prices linked to the US–Iran conflict. With Donald Trump seeking an exit from hostilities ahead of the mid-term elections, many hope the latest ceasefire holds.
August is traditionally quiet in the eurozone, with much of the bloc on holiday, so little data is due beyond the Purchasing Managers’ Index (PMI) business surveys on August 21st. Last month’s surveys showed early signs of recovery in Germany’s manufacturing sector.
Expected ranges:
- EURUSD 1.1440–1.1700
- EURGBP 0.8490–0.8650
GBP | Sterling
Sterling has rallied to around US$1.35 on a softer US dollar, but nerves over the UK’s fiscal position ahead of the Autumn Budget could cap potential gains in September.
Andy Burnham took office in July as the UK’s seventh Prime Minister in 10 years, succeeding Keir Starmer. His choice of Chancellor of the Exchequer, John Burnham, was unexpected but generally well received by markets. Burnham has promised to balance the UK’s books, though nerves are likely ahead of the Autumn Budget, so the pound’s recent rally could be short-lived.
GBP/USD is back around 1.35 after dipping below 1.33 in late July, helped by a broadly weaker US dollar. Support also came from the Bank of England’s July 30th decision, where three members of the Monetary Policy Committee voted for a 0.25% rate rise. The majority voted to hold and wait to see what inflationary pressure develops from the recent jump in oil prices, as the United States resumed hostilities with Iran.
If US inflation comes in lower than expected this month, GBP/USD could test the May high of 1.3650. When Parliament returns in early September, jitters over the UK’s fiscal position may return, as they did at the same time last year. With no Bank of England decision until September 17th, inflation data, business surveys and the Middle East are likely to continue driving the pound for the rest of the month.
Expected ranges:
- GBPUSD 1.3270–1.3655
- GBPEUR 1.1560–1.1775
AUD | Australian dollar
The Australian dollar recovered through July to sit just below US$0.70, supported by a beneficial interest rate gap, though further gains may need fresh US dollar weakness.
AUD/USD performed strongly through July, recovering from June’s pullback and moving back towards 0.70. A softer US dollar, improving global risk sentiment and expectations that the interest rate gap between Australia and the United States would stay supportive all helped. By the end of July the pair was trading in the high 0.69s. Prospects of the Reserve Bank of Australia holding a relatively firm stance on inflation, in addition to the Federal Reserve staying cautious about raising rates further, also underpinned demand.
In August, markets will likely focus on Reserve Bank of Australia policy expectations, inflation data, US employment figures and Federal Reserve guidance on rates. The Australian dollar still benefits from an interest rate advantage over the US, but gains could be capped if US data surprises to the upside and pushes Treasury yields higher. Developments in China also remain important, given Australia’s trade exposure to iron ore and broader commodity demand.
Stubborn Australian inflation and weaker US data could support trading towards the 0.7100–0.7200 band, while stronger US figures or renewed risk aversion could push the pair back towards the low 0.6900s.
Expected ranges:
- AUDUSD 0.6900–0.7200
- AUDEUR 0.606 – 0.625
- AUDGBP 0.51648 – 0.52194
- AUDNZD 1.17 – 1.22
NZD New Zealand dollar
The New Zealand dollar recovered through July to trade near US$0.59, helped by improving risk appetite and a softer US dollar, with the interest rate gap the key driver.
NZD/USD made a solid recovery through July as global risk sentiment improved and the US dollar softened. The New Zealand dollar benefited from stronger demand for higher-yielding, commodity-linked currencies, rebounding from its late-June lows and pushing steadily higher through the month. Expectations that the Reserve Bank of New Zealand would maintain a relatively firm policy stance, alongside a more cautious Federal Reserve outlook, provided further support. By the end of July the pair was trading near US$0.59.
In August, markets are expected to focus on New Zealand economic data, Reserve Bank of New Zealand guidance, and the outlook for US growth and inflation. The interest rate gap between New Zealand and the United States is expected to remain a key driver, alongside broader global risk appetite. Developments in China matter too, given New Zealand’s trade links to the region: renewed Chinese demand or stronger commodity markets would likely support the currency.
The bias leans slightly towards further gains if global risk sentiment stays beneficial and US data disappoints. A resurgence in US dollar strength or weaker commodity markets could see the pair drift back towards the mid-0.5700s.
Expected ranges:
- NZDUSD 0.5750–0.6000
USD | United States dollar
The US dollar eased in July as softer inflation data offset support from higher oil prices, leaving economic releases and the Jackson Hole symposium as key drivers in August.
The US dollar lost momentum in July after its strong June rally. The US Dollar Index (DXY), which measures the greenback against a basket of major currencies, fell from 101.22 at the start of the month to 99.80 by month-end, a decline of around 1.4%, as markets weighed geopolitical risk against signs of easing inflation. While higher oil prices and renewed Middle East tensions typically support the US dollar, softer-than-expected inflation data dampened expectations of further Federal Reserve rate rises and capped its upside.
The Federal Reserve left rates unchanged at 3.5%–3.75% last month, though three members voted for a rise, underlining concerns that inflation remains above target. Markets are also adapting to new Fed Chair Kevin Warsh, whose preference for a data-led approach and less guidance on future moves has added volatility. Last week’s employment report showed payrolls unexpectedly falling by 23,000 against expectations of an 85,000 increase, raising doubts over how long the Fed can maintain higher rates.
August is set to be an important month, with inflation and jobs data, the Middle East and the Jackson Hole symposium all in focus.
Expected range:
- DXY 99.250–100.050
JPY | Japanese yen
Coordinated intervention and hawkish Bank of Japan signalling pulled the yen back from four-decade lows, though a wide US–Japan rate gap leaves markets questioning whether the recovery will hold.
The yen endured a turbulent July, trading near four-decade lows for much of the month before staging a sharp recovery following coordinated intervention. Markets weighed the persistent US–Japan rate differential against growing conviction that the Bank of Japan’s tightening cycle has further to run, though many remained sceptical that intervention alone would reverse the yen’s longer-term weakness.
Domestic data was mixed. Retail sales rose just 0.5% year-on-year, well short of the 3.1% expected, while industrial output accelerated and beat expectations. Inflation continued to firm, with Tokyo core CPI rising 1.9% year-on-year in July against a 1.8% forecast, accelerating for a second consecutive month. Brent crude briefly rose above US$100 a barrel late in the month, adding further price pressure for energy-importing Japan.
The Bank of Japan held rates at 1.00% on July 31st but upgraded its FY2026 growth forecast to 0.6%, and Governor Ueda’s hawkish tone may suggest a September rise in play. Firming inflation and sustained wage growth could offer the yen more durable support, though the wide rate differential and elevated energy prices remain key risks.
Expected range:
- USDJPY 152.00–162.00
CAD | Canadian dollar
The Canadian dollar recovered in July, supported by strong jobs data and higher oil prices, though US trade tensions and a firmer greenback could limit further gains in August.
The Canadian dollar staged a modest recovery in July after a difficult June, with CAD/USD rising from US$0.7044 at the start of the month to US$0.7132 by month-end, an increase of 1.25%. Support came from strong domestic data, with employment rising by 18,200 and the unemployment rate falling to 6.5%. Higher oil prices, driven by ongoing Middle East tensions, also provided a tailwind for Canada’s commodity-linked currency, though the rally stayed subdued as investors favoured higher-yielding currencies such as the Norwegian krone.
The Bank of Canada left rates unchanged at 2.25% last month and kept a cautious outlook for growth, despite inflation remaining above target. The Canadian dollar held up well after the announcement, but gains were later tempered by news of proposed tariffs on Canadian imports announced by President Trump. It received a further boost last week when Canada added 75,100 jobs in July, far exceeding expectations and lifting CAD/USD from US$0.7142 to US$0.7169.
August may determine whether the Canadian dollar can build on that recovery. Markets are expected to watch whether CAD/USD holds above 0.7100, with inflation, gross domestic product (GDP) and employment data being important tests.
Expected range:
- CADUSD 0.7100–0.7250
SGD | Singapore dollar
Easing energy prices and renewed optimism around the Strait of Hormuz dragged USD/SGD into the low 1.28s, with firm central bank policy and resilient tech exports overcoming a persistent US yield gap.
The US dollar weakened steadily against the Singapore dollar through July and early August, with USD/SGD falling from near 1.29 to the low 1.28s. The move was driven globally by a softer US dollar amid optimism over the Strait of Hormuz and a strengthening Chinese yuan.
Domestically, Singapore held strong momentum. Advance estimates showed second-quarter GDP expanding 5.7% year-on-year, supported by robust artificial intelligence technology exports, while June headline inflation rose to 1.9% and core inflation to 1.6%. The Monetary Authority of Singapore responded with an unexpected tightening on July 27th, steepening the Singapore dollar appreciation slope for a second consecutive meeting and pushing 10-year government bond yields up 38 basis points, the largest monthly rise since September 2022.
Although US rates retain a yield advantage of more than 200 basis points, policy-driven appreciation and solid growth appear to outweigh it, which could keep USD/SGD tilted lower. Brief US dollar rallies remain possible on inflation surprises or trade tensions, but domestic inflation data is likely to be the key test this month.
Expected range:
- USDSGD 1.2700–1.2900
HKD | Hong Kong dollar
A widening HKD–USD yield gap driven by lower local HIBOR rates fuelled carry trade demand for US dollars, though steady capital inflows and solid 4.3% GDP growth kept USD/HKD capped near 7.84.
USD/HKD traded in a narrow range near 7.84 through July and early August, firmly anchored by Hong Kong’s Linked Exchange Rate System. Lower local rates relative to US rates, with one-month HIBOR around 2.76% against US SOFR in the mid-3% range, encouraged carry trade demand for US dollars.
That upward pressure was counterbalanced by a surge in local initial public offering activity, with 84 listings raising HK$209.9 billion in the first half, locking up capital and tightening interbank liquidity. The People’s Bank of China also expanded its offshore renminbi business facility to 500 billion yuan, supporting local sentiment.
Second-quarter GDP grew 4.3% year-on-year, driven by a 53.4% surge in June merchandise exports amid global artificial intelligence hardware demand, while June inflation held at 2.0%. The Hong Kong Monetary Authority kept its base rate at 4.0% on July 30th, in lockstep with the Federal Reserve. USD/HKD is likely expected to stay capped below the 7.8500 weak-side undertaking, with US labour data and the Jackson Hole symposium being key catalysts.
Expected range:
- USDHKD 7.8350–7.8480
What the joint US–Japan yen intervention could mean for markets. Read the article.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
