Newsletter · · Ashutosh Agarwal

Oil Finds a Floor and China Quietly Reflates - Commodity FX - Week of July 4, 2026

Commodity FX newsletter for the week of July 4, 2026. Oil stopped falling and began base-building near $70 with second-half Brent forecasts running above the strip, while two credible voices argued China has quietly begun reflating, giving the commodity-currency bloc its first bull case in a month even as a hawkish Kevin Warsh kept the dollar's boot on the AUD, CAD and the metals.

Commodity FX

Week of July 4, 2026: Oil Finds a Floor and China Quietly Reflates

For three weeks the tape read like a one-way trade: oil sliding, the dollar breaking out, the whole commodity-FX bloc taking it in the shorts. This week the story got more interesting. Oil stopped falling and started building a floor near $70, the desks began quoting second-half forecasts above the strip, and, for the first time in a month, two credible voices argued China is turning back on the taps. The Aussie held its ground. The loonie stayed pinned. And the dollar kept its boot exactly where it was.

TL;DR

  • Oil's found a range, not a bottomless pit. Operators now see WTI base-building around $70, with Brent forecasts for the second half running above the forward curve. The falling-knife framing is gone.
  • The China cue finally cut both ways. After weeks of pure demand-destruction talk, a metals desk sees "stronger China momentum" into H2 and a liquidity shop says Beijing has quietly started reflating. That's the swing factor for the exporter bloc.
  • The Aussie is the G10 hawk, with a housing crack. RBA minutes doubled down on "restrictive," no cuts in sight, but the bank newly flagged a faster-than-expected housing slowdown as a growth risk. The loonie, meanwhile, just sits at the 70-cent line.

What's new

The RBA is holding the line, and starting to sweat the housing market. The week's cleanest read on the Aussie came from NAB's Taylor Nugent on NAB Morning Call (Jun 30). The June minutes had members agreeing financial conditions are "now probably somewhat restrictive," a notch firmer than before the RBA's recent 75bp of hikes, and insisting conditions need to stay there, with "a period of below-trend growth" required. No cuts anytime soon. But the balance is shifting: the extreme upside-inflation scenarios "have faded a little bit" on cheaper oil, and the bank added fresh worry about "a more material slowdown in the housing market than they were earlier expecting." The June Cotality prints back that up, Sydney -1.2% on the month, Melbourne -1.0%, Canberra -1.3%, with even the hot mid-sized capitals stalling. The Aussie sat at 69.2 US cents through it. Operator view. The takeaway: the RBA is still the developed-world hawk propping the currency, but a domestic fault line is opening underneath the trade.

Oil stopped being a falling knife. Three separate operators landed in the same place: a new range around $70, not a return to the bear market. On The KE Report (Jun 30), commodity strategist Darrell Fletcher noted WTI started the year at $56, is still up 20% year-to-date despite being down 20% on the month, and now has to reprice a "billion, billion-and-a-half barrel hole" of lost crude against a still-uncertain restock. On Making Sense (Jun 29), metals-and-energy researcher Greg Scheer put hard numbers on it: Brent averaging ~$86 in Q3 and ~$80 in Q4, exiting the year near $78, "well above what is currently embedded into the oil forward curve." Operator views. For the petro-currencies, that matters: the downside for CAD and NOK is capped if the desks are right that the strip is too pessimistic on the next two quarters.

"China... they just don't want to pay high prices. Now that we're seeing prices at 70, they're buying again." (Josef Schachter)

The bid nobody wants to admit is back: China. Energy analyst Josef Schachter, on The KE Report's weekend show (Jun 27), argued the great Chinese "demand destruction" was a myth, Beijing simply refused to pay $100, and at $70 they're buying again, snapping up discounted Iranian barrels. US data on the same tape showed no destruction either: production up to 13.82 mbpd, demand up 2.9% year-on-year. Operator view. Pair that with Scheer's copper call (below) and Michael Howell's liquidity read (below), and the China cue, one-sidedly bearish for a month, suddenly has a bull.

A liquidity shop says Beijing quietly hit the brakes, then let off. The most original framing of the week came from CrossBorder Capital's Michael Howell on The David Lin Report (Jun 29). His read: the PBoC has been deliberately reflating internally since 2023, then "turned off the money tap" around March 2, an "extraordinary" move he attributes to a decision to cool the economy and suppress oil demand just as the Iran conflict blew up (Beijing did the same before the 2008 Olympics). The latest data, he says, shows the injections stabilizing: "China is reliquifying again." Operator view. If he's right, the marginal buyer of commodities is coming back online, the single most important variable for the AUD, the CAD and copper.

The dollar is still the boot on the bloc's neck. None of this dislodges the macro headwind. Kevin Warsh's hawkish debut has the dollar index above 101, and rate-advisory operator JP Conklin on The Rate Guy (Jun 28) put the market at roughly an 80% chance of a hike this year, even as he flatly disagrees: "That's not hiking this year. Period. Warsh is putting on a show and the markets bought it." Operator view. Until that show ends, the exporter-FX bloc trades with a governor on it.

The debate

This week the tape genuinely gave us both sides, which it hasn't for a while.

Bear (dollar-and-Fed): Warsh's hawkish hold has DXY above 101, ~80% of a hike priced, and, per Scheer, turned the structural gold story into "a bit of a deeper freeze" while the whole metals complex corrected. Howell warns the front end (two-year, SOFR) is screaming that "rates have got to go up," and a runaway dollar would be "a wrecking ball for the world economy." That backdrop pins AUD, CAD, and the metals plays alike.

Bull (China reflation): For the first time in weeks, the reflation case actually got voiced. Scheer sees "stronger momentum in China in the second half of 26" underpinning a structurally tight copper market; Howell sees Beijing reliquifying; Schachter sees Chinese barrels back on the bid at $70. If China is turning while oil base-builds above the strip, the carry-and-commodity bloc is the obvious beneficiary, the moment the dollar rhetoric softens.

The honest read: the bear is here and priced, the bull is early and contingent. But after a month of nobody defending the reflation side, that it got defended at all is the week's real shift.

Trades in play

One genuinely actionable expression surfaced, and it's in Canadian energy equities rather than the FX. Schachter is sitting on cash waiting for his bullish-percent-index buy signal (sub-10%) after a ~20% correction in the TSX Energy Index, at which point he'll move to "100% of my target energy weighting," something he says he hasn't done since 2020, betting on "doubles and triples" over two to three years as the industry can't function below $65 oil. That's an operator with a real book flagging a buy zone. No clean commodity-FX pair trade was voiced this week. Last week's long-NOK/short-SEK call had no Scandi tape to renew it.

Read-throughs

  • Iron ore / BHP, RIO, Fortescue: Oceanic Iron Ore's Chris Batalha, on Commodity Culture (Jul 2), sees the 62% benchmark holding the $100-110 range, with a short-term dip risk from Rio's Simandou ramp (up to 120mt/yr), but argues that tonnage "is only replacing the depletion of existing mines," not a glut, and that high-purity (65%+) ore is where "the price increase is inevitable." Insider view, but note he's a junior developer talking his book in a sponsored slot.
  • WTI / Brent + Canadian energy (CNQ, SU, ENB): oil base-building near $70; the TSX Energy Index down ~20% into what Schachter calls a buy zone. No name-level CNQ/SU/ENB calls this week, the read is sector, not single-stock.
  • Copper: the cleanest structural bull of the week. Scheer sees a "global industrial upturn," anemic mine supply, and a US-China "tug of war" over refined copper leaving ex-US balances "exceptionally tight," pointing toward ~$15,000/tonne. The near-term catch: the same hawkish-Fed freeze hitting all metals.
  • The yuan as China proxy: Howell's "reliquifying" call is the constructive read; on Making Sense, FX's Mira flagged the mirror risk: if Beijing lets USD/CNY drift higher (a weaker yuan), expect "pretty large" spillover across the global FX complex. Watch the fix.
  • NOK / Equinor, SEK / Swedish banks, the NZD, MXN / Banxico: silent, again. Not a single krone, krona, kiwi or peso voice on the tape. The one moment the Aussie and the krone shared a room, it was Fortescue's Andrew Forrest being interviewed in Oslo by the head of Norway's sovereign wealth fund on In Good Company (Jul 3), and they talked about crocodiles, not currencies.

What changed

Three threads moved. Oil flipped from falling knife to floor, last week WTI cracked sub-$70 with 2027 Brent cut to $64; this week the desks see a new range near $70 and second-half forecasts running above the strip (2027 still soft). The Aussie went from cracking to holding, but the crack migrated from the screen (last week's tech selloff) to the ground underneath it (housing rolling over, now on the RBA's risk list). And the China cue grew a second side, after a month of pure demand-destruction talk, reflation finally had defenders. The Scandis and the kiwi, meanwhile, changed not at all: still silent.