Dollar Down, Markets Mute

August 17, 2026

Elias Haddad

Broad-based USD weakness leads an otherwise quiet session. Canada July CPI takes the spotlight.

Poor Japan Q2 real GDP puts fragile debt dynamics back in focus.

China economic slowdown carries into July.

Check-out our Drivers for the Week Ahead for the upcoming key market shaping themes.

Currencies are driving today’s price action, while global equities, bonds and crude oil prices are mostly steady. USD extended last week’s decline triggered by the downward adjustment to Fed funds rate expectations. There was no fresh catalyst behind today’s broad-based USD slump, suggesting the DXY index should stabilize around its 200-day moving average.

The US Treasury International Capital data (9:00pm London, 4:00pm New York) is poised to show that foreign appetite for US long-term securities remains strong and argue against a sustained USD decline.

JAPAN

USD/JPY is consolidating between resistance at 160.00 and support at the 200-day moving average (158.25). Japan real GDP growth underwhelmed in Q2 and details were poor. Real GDP rose 0.3% q/q (consensus: 0.5%) vs. 0.5% in Q1 driven by net exports (+0.5ppt), government consumption (+0.3ppt), and private inventories (+0.3ppt). Private consumption was flat, while private non-residential investment shaved -0.2ppt off growth.

Sluggish domestic demand activity will do little to ease Japan’s fiscal concerns, a major headwind for JPY. 10-year JGB yields (2.91%) are catching up to Japan nominal GDP growth (3.2% y/y in Q2), putting the country’s debt dynamic on a more fragile footing.

CANADA

USD/CAD is eyeing key support at the 200-day moving average (1.3849). Canada July CPI is up next (1:30pm London, 8:30am New York). Headline CPI is seen at 2.9% y/y vs. 2.8% in June (BOC Q3 forecast: 2.5%), core CPI (ex. food & energy) is expected at 1.8% y/y vs. 1.8% in June, and core CPI (average of trim and median) is projected at 1.85% for a second straight month (BOC Q3 forecast: 2.0%).

Canada’s favorable growth-inflation mix bodes well for CAD. However, the negative output gap leaves room for markets to trim BOC rate hike bets (67bps in the next twelve months), limiting CAD upside.

CHINA

USD/CNH dipped to a new multi-year low at 6.7388. China real sector activity weakened further in the seven months to July. Retail sales growth unexpectedly slowed to 1.2% y/y (consensus: 1.4%) vs. 1.3% in June, industrial production growth matched consensus at 5.3% y/y vs. 5.4% in June, and fixed asset investment growth plunged -6.7% y/y (consensus: -6.2%) vs. -5.7% in June. Excluding real estate development, fixed asset investment growth fell -3.7% y/y vs. -2.7% in June.

Regardless, USD/CNH downtrend is intact reflecting both CNH internationalization potential and China’s internal rebalancing story.

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