US FX WRAP: Dollar weighed by lower short-end US yields; CAD outperforms
USD was once again weighed by a pullback in short-end US yields. The move came amid a slight decline in prices of crude and refined products in response to optimism about an imminent announcement of the Iran-Oman deal, which is expected to kickstart the path back to the reopening of the Strait of Hormuz. Earlier today, US President Trump said they will know regarding Iran in the next 48 hours. Separately, US data showed an ISM Services PMI miss, albeit still in expansion, while employment moved back into contraction and prices remained elevated. Ahead of NFP on Friday, the July ADP figure eased to 44k from June's 98k (exp. 70k), with Pantheon Macroeconomics in response noting it suggests that the risks to the July private payrolls figure are skewed to the downside. At the Fed, Schmid (2028 voter) remains a hawk, describing current policy as not restrictive enough to get inflation back to 2%; meanwhile, Kashkari (2026 voter) continues to advocate for slowly hiking rates.
NZD underperformed amid the unemployment rate unexpectedly moving higher to 5.6% in Q2 (exp. 5.4%, prev. 5.3%) despite better-than-expected employment growth, 0.5% Q/Q (exp. 0.1%, prev. 0.2%). NZD/USD hit lows of 0.58598 before paring most losses to around 0.58870.
CAD, CHF, and AUD outperformed vs USD with currency-specific newsflow light. EUR/USD is modestly firmer, showing no reaction to EZ PMIs, which did not deviate enough from prelim figures to spark a reaction. EUR/USD briefly breached above the August high of 1.5590 to 1.5594 before trimming to around 1.1548.
A dollar led lower by the short end is the classic rate-differential transmission: when two-year yields fade, the carry case for the USD erodes first and the high-beta and funding-sensitive crosses respond before the majors re-rate. The composition here is familiar, with soft survey labour components and a weak ADP read feeding front-end pricing, while hawkish commentary from non-centre-of-gravity Fed voters has historically done little to reverse such moves unless echoed by the median. The oil leg matters for the distinction within the bloc: an easing crude complex on supply-route optimism tends to flatter the importers and weigh on petro-linked FX, so CAD outperformance alongside falling crude is the unusual pairing and typically reflects positioning or flows rather than terms-of-trade logic. NZD underperformance on a rising unemployment rate despite firm jobs growth fits the pattern of central banks in that jurisdiction reading slack through the unemployment print rather than the quantity of employment, steepening easing expectations at the front of the local curve. The established sequence from here is that ADP and ISM employment misses raise the stakes of the payrolls release rather than settle the argument, and dollar direction into that print has tended to be hostage to positioning rather than fresh commentary. The Hormuz headline remains a binary follow-on, with any deal announcement or denial moving energy and the FX complex through the crude channel.