FX Monthly Update – July 2026

Economic Outlook and Summary

June closed with the Iran ceasefire holding, but it has done little to deliver the “return to normal” promised in the headlines. The February 28 outbreak of hostilities gave way to a formal peace declaration and signing ceremony in Switzerland, restoring the pre-war framework on paper. The Strait of Hormuz reopened without transit tolls and the US lifted its blockade.

In practice, shipping volumes through the Strait remain well below pre-war norms, while sanctions relief promised under the US-Iran memorandum has yet to make its way through Congress or gain broader international approval. The oil market has priced in only a partial normalisation, and that disconnect is likely to remain a defining theme in July.

Equity and bond markets spent June adjusting to the first full month under Fed Chair Kevin Warsh. His deliberate silence between meetings left investors to fill the void with their own assumptions, most of them more hawkish than the incoming data has justified.

July’s marquee domestic event is the mandatory CUSMA review, which came due on July 1. Its outcome remains the single biggest swing factor for the Canadian dollar during the second half of the year.

The USD and Federal Reserve

The US dollar maintained a firm undertone through June, supported by the same two pillars that drove gains in May: inflation data that keeps rate cuts off the table and lingering safe-haven demand tied to the Middle East.

Minutes from the June 16-17 FOMC meeting, due July 8, are expected to show a committee divided between members retaining a tightening bias and those favouring eventual easing, although the median outlook still points to rates remaining unchanged through year-end. Markets have consistently interpreted Warsh’s cautious communication as more hawkish than the dot plot itself suggests, a pattern that could repeat once the minutes are released.

Five internal task forces are due to report on longer-term structural issues later this year, and Warsh has repeatedly cautioned markets against drawing premature conclusions before those reviews are complete.

The Canadian Dollar and Bank of Canada

Canada’s labour market surprised with an 88,000 increase in employment in May before losing momentum in June, while the Bank of Canada left its policy rate unchanged at 2.25%.

June’s employment report, due July 10, is expected to show job growth of just 10,000 and an unemployment rate of 6.6%.

The Canadian dollar remains caught between an exceptionally crowded speculative short position, firm oil prices and uncertainty surrounding the CUSMA review. As expected, the United States chose not to extend the agreement despite calls from Canada and Mexico to do so.

The Bank of Canada’s next policy decision is due July 15 and is widely expected to leave interest rates unchanged, although the quarterly Business Outlook Survey and Consumer Expectations Survey, both released on July 6, will help shape expectations heading into the meeting.

Oil Prices

WTI continues to trade with a meaningful geopolitical risk premium even though active hostilities have ceased.

OPEC meets in Vienna on July 7-8 against a backdrop of growing internal divisions following the UAE’s May 1 withdrawal from the group. August production commitments remain uncertain given continuing damage to regional energy infrastructure.

Meanwhile, strong refinery utilisation rates and tight gasoline inventories in both Canada and the United States suggest pump prices are likely to remain elevated even if crude prices continue to ease. That should keep a floor under oil prices and limit meaningful downside for the Canadian dollar during July