Currency markets react to Canadian inflation and yen volatility

Global currency markets are experiencing volatility driven by inflation data and geopolitical tensions. In Canada, the headline Consumer Price Index rose to 3% in July, exceeding market forecasts of 2.9%. This acceleration, alongside rising crude oil prices, has supported the Canadian dollar against the US dollar.

In the yen market, the USD/JPY pair has climbed back above the 159 level, testing the effectiveness of previous joint US-Japan interventions. Westpac analysts suggest that the impact of coordinated yen-buying is fading, predicting that a sustained yen recovery may not occur until late 2026 when US monetary policy expectations shift. The bank expects USD/JPY to hold around 160 for the foreseeable future.

Geopolitical risks, including tensions between the US and Iran and discussions regarding the Strait of Hormuz, are contributing to oil supply concerns and safe-haven demand for the US dollar.