The yen flips from strongest to weakest as Hormuz hopes pull oil to $82

Hopes of a Hormuz reopening pushed crude down a second straight session and Treasury yields with it, while the yen reversed from strongest major to weakest and our readiness gauge shed 17 points ahead of a heavy data day.

Geopolitical currents and commodities

• Yesterday's driver was escalation; today's is the opposite. Bloomberg reports Iran and Oman are advancing an "interim framework" to reopen the Strait of Hormuz, and Russian agency RIA Novosti, citing sources in Iran and Pakistan, reported a US-Iran ceasefire deal. Easing inflation fears pulled US Treasury yields lower across the curve.
• WTI crude fell for a second straight session, trading about 3% lower near $82.00 after holding the $84-85 band. The slide began before the ceasefire reports, as traders judged Washington's pressure on Iran less risky than priced.
• Gold advanced above $4,650 to around $4,670, its highest since 14 May, on US dollar weakness and Treasury bond buyback plans. Buyers failed to clear $4,700, making that the level to watch now the $4,400 ceiling is behind it.
• Trade tensions escalated as Canada set "dollar-for-dollar" retaliatory tariffs of 15%, 25% and 50% on $20 billion of US goods across roughly 700 product lines, starting 8 September, with the US reportedly weighing further escalation.

Major currency dynamics

• The US dollar slipped as the bond market rallied and Treasury yields fell. Yesterday's CB Consumer Confidence offered no support: the index came in at 89.4 against a 90.3 forecast, and July's reading was revised down from 90.8 to 90.2.
• The Japanese yen went from the strongest major yesterday to the weakest today, a full reversal in a single session. It slipped despite July services inflation accelerating to 3.6%, beating forecasts and strengthening the case for a near-term BOJ hike, with economists shifting towards a September move to 1.25%. Tokyo was reported to have bought yen within a range rather than to set a trend, and USD/JPY held just above 159.00.
• The Canadian dollar is the strongest currency today, rebounding even as Ottawa announced the retaliatory tariffs above.
• The Australian and New Zealand dollars both strengthened. The Australian dollar gained over 0.20% after hawkish minutes from the RBA kept a rate rise on the table. The New Zealand dollar climbed to around 0.5980, its highest since 1 June, on RBNZ rate-hike expectations.
• The pound sterling holds near a six-month high of 1.3675, with no significant British economic test this week.
• The Swiss franc ended a three-session run as the weakest major.

Market sentiment and key events today

• Our market sentiment gauge, the FSI, stands at 68 (Greed). The MRS dropped to 41 from 58, its lowest of the current run, and almost all of that came from one component: its news component fell from 18 to 2 out of 20 with the releases below imminent. Our carry trade score (CTS) remains high at 79.
• Australian CPI for July leads the day (m/m forecast 0.9%, y/y forecast 3.3%, both High impact), forecast to show cooling inflation but still above the central bank's target.
• US Core PCE Price Index m/m (forecast 0.2%) and Prelim GDP q/q (forecast 1.5%) are due later today, with FOMC member Barkin speaking afterwards.