US
A modest pullback in crude oil prices – on optimism around the opening of the Strait of Hormuz – has taken some steam out of the USD bounce, nudged bond yields a bit lower and given equities a lift.
USD and Treasury yields will take their cue today from the July non-farm payrolls (NFP) (1:30pm London, 8:30am New York). Consensus is looking for NFP gains of +80k vs. +57k in June. Bloomberg’s whisper number is around the same at +78k. The unemployment rate is seen unchanged at 4.2% for a second consecutive month, a tick below the FOMC 2026 projection (4.3%)
An NFP beat would reinforce the resilience of US labor demand and bring forward Fed hike expectations. But it should do little to change the roughly 50bps of tightening priced in over the next year. US wage growth is consistent with the Fed’s 2% inflation target, and Fed policy is already restrictive, assuming a neutral rate of 3.00%.
That suggests any USD boost from a strong payrolls print is likely to be shallow and short-lived. Conversely, an NFP miss would trim Fed rate hike bets and weigh on USD.
CANADA
USD/CAD is holding above psychological support at 1.4000. Canada’s July labor force survey is the domestic highlight (1:30pm London, 8:30am New York). The economy is expected to add +20.0k jobs in July vs. 18.2k in June and the unemployment rate is forecast to remain at 6.5% for a second straight month. The unemployment rate has generally stayed between 6.5% and 7.0% since the end of 2024.
The Bank of Canada is well positioned to keep the policy rate on hold at 2.25% for an extended period some time, with underlying inflation running below its 2% target. That leaves little scope for a hawkish rate repricing and limits any CAD relief rally.
JAPAN
Japan’s Ministry of Finance released the details of its FX intervention operations for the period from April through June 2026. Japan’s intervention record this year is hardly convincing. The three interventions triggered kneejerk JPY rallies but little lasting follow-though with USD/JPY ultimately appreciating to a 40-year high around 164.00 on July 23.
• April 30, 2026: BOJ bought ¥6.2787 trillion. USD/JPY dropped from an intra-day high of 160.72 to an intra-day low of 155.57, a 5.2 yen rally.
• May 4, 2026: BOJ bought ¥0.7802 trillion. USD/JPY dropped from an intra-day high of 157.30 to an intra-day low of 155.72, a 1.6 yen rally.
• May 6, 2026: BOJ bought ¥4.6759 trillion. USD/JPY dropped from an intra-day high of 157.94 to an intra-day low of 155.04, a 2.9 yen rally.
The size of Japan’s most recent FX intervention on July 30 and July 31 will be released end-August. But estimates suggest Japan used a record of about ¥14 trillion to prop up JPY. As a result, USD/JPY slumped from an intra-day high of 163.74 on July 30 to reach a low of 155.23 on August 3 (8.5 yen rally). USD/JPY has since retraced roughly 40% of that decline and is trading just above its 200-day moving average (158.08).
The market narrative is already slipping back into skepticism over the effectiveness of Japan’s intervention. We think that complacency is premature for two reasons.
First, the coordinated US-Japan intervention – and officials’ warning that they stand ready to act again – significantly raises the cost of fighting a stronger yen and puts a much firmer ceiling on USD/JPY. As of the end of July, Japan had $1.09 trillion in currency reserves (¥173 trillion), ample firepower to back up its intervention threat.
Second, risks are skewed towards further hawkish Bank of Japan (BOJ) rate repricing. The policy rate (1.00%) is near the lower end of the bank’s neutral range (1.10%-2.50%) while the economy is operating above potential. That leaves plenty of room for the BOJ to quicken the pace of normalization.
