USD Sees Mixed Performance as Oil Prices Soar and Trade Tensions Escalate

Scotiabank strategists Shaun Osborne and Eric Theoret say the US Dollar is experiencing mixed performance due to rising oil prices, Japanese Yen strength, and escalating US trade tensions.

The Brent oil price is nearing $100 after attacks on Saudi oil infrastructure led to a significant increase in crude costs. This has resulted in soft stocks and firmer US yields, as well as a slightly steeper Treasury curve.

Trade tensions are also rising, with President Trump targeting Canada over Ottawa's imposition of counter-tariffs. He has threatened a broader trade war unless the Federal Reserve cuts interest rates, intensifying pressure on the Fed to lower rates.

The upcoming US Producer Price Index (PPI) and Consumer Price Index (CPI) data will be crucial in determining the direction of monetary policy at the September 16th FOMC meeting. Swaps still price around a 60% chance of a 25bps hike next week, despite growing calls for rate cuts.