Newsletter · 2026-07-18 · Ashutosh Agarwal

Cool Inflation Tests the Dollar as Warsh Holds the Hawkish Line - Commodity FX - Week of July 18, 2026

Commodity FX newsletter for the week of July 18, 2026. A cool June CPI print cracked the dollar for a day, but Fed chair Kevin Warsh stayed hawkish in his testimony, leaving the commodity-currency bloc (the Aussie, the loonie, the krone and the krona) caught in a tug-of-war, with a rare named short on the Australian dollar and the first Scandi read in weeks.

Commodity FX

Week of July 18, 2026: Cool Inflation Tests the Dollar as Warsh Holds the Hawkish Line

Last week we said the whole commodity-currency world was hanging on one thing: the US inflation report on Tuesday, and Fed chair Kevin Warsh's testimony to Congress right behind it. Well, both landed this week, and they pulled in opposite directions.

The inflation number came in cool. Genuinely, broadly cool, the softest reading in a long while. For a day, the mighty US dollar (the single biggest weight on the Aussie, the loonie, the krone and the rest of this bloc) actually wobbled. Then Warsh sat down in front of Congress and refused to play along, insisting the fight against inflation is still on and there will be no rescue, no rate cuts, no apologies.

So the picture this week is a tug-of-war: the data says the dollar's grip should loosen; the Fed's own words say not so fast. And into that gap, for the first time in a while, a couple of real desks put actual currency views on the table, including a rare, named bet against the Australian dollar and, believe it or not, the first serious word on the Norwegian and Swedish currencies in weeks.

One honest note up top: the podcasts this week were heavy on the dollar, China and copper, and thin on Canada. There was no fresh voice on the loonie, on Norway's Equinor, on the Swedish banks, or on the Mexican peso. Where a thread went quiet, we say so rather than pad it.

TL;DR

US inflation came in cool, the first crack in the dollar's armor in a while. June consumer prices were soft across the board, and wholesale prices actually fell. Bets on a July Fed rate hike collapsed from better-than-even to almost nothing in two days. That's a tactical breather for the whole commodity-currency bloc.
But Warsh didn't blink. In testimony to Congress, the new Fed chair stuck to his hard line: "inflation's a choice," no rate cuts, no excuses. J.P. Morgan's FX team calls the soft data "a setback in a tactical sense" but says it's "too early to throw in the towel" on a strong dollar.
Citi's head of FX turned lukewarm on the dollar, and put a name to a trade against the Aussie. Dan Tobon thinks the strong-dollar view has gotten "crowded," sees value in the New Zealand dollar, and says his single best idea is to be short the Australian dollar against the Brazilian real.
China stayed soft. Q2 growth was 4.3%, the slowest in over three years, with property and households still the losers. That's the demand backdrop hanging over iron ore and the Aussie.
Copper turned into a real three-way fight: a tariff-driven bull case, a build-it-all bull case, and a contrarian who says everyone's too bullish and inventories are at 30-year highs.
The Scandi silence finally broke: J.P. Morgan flagged a bit of tactical upside for the Norwegian krone and treats the Swedish krona as a currency to fund with, not to own.

What's new

The inflation test came in cool, and the dollar felt it. This is the week's biggest development. June's consumer price index (CPI, the standard measure of what everyday prices are doing) was soft in a way that surprised almost everyone. On J.P. Morgan's own markets podcast, At Any Rate, "Global FX: CPI/USD, Model take-aways, EM rundown" (Jul 17), strategist Patrick Locke laid out just how soft: core goods prices fell, core services were flat, and even "super core," the sticky services piece the Fed watches most closely, went negative for the first time since March 2025. In his words, it was "the second biggest disappointment relative to consensus going back to the start of this cycle," and it was "compounded further by the PPI miss a day later," wholesale prices actually dropping. Operator view (sell-side FX strategists with real books.) On CNBC's Fast Money (Jul 15), the traders put the market reaction in plain numbers: bets on a July Fed rate hike had been "north of 50%" two days earlier and collapsed to "sub-10%." Even the cheerleaders piled on: on Kudlow (Jul 14), commentator John Carney called it "the best CPI report in history." Pundit opinion. Why this matters for our bloc: a cooler-inflation, fewer-hikes story is the one thing that reliably takes some steam out of the US dollar, and a softer dollar is oxygen for every commodity currency in this letter.

But Warsh refused to soften. Here's the twist. The same day the cool number landed, Kevin Warsh went to Capitol Hill and dug in. You can hear the testimony itself on Squawk on the Street, "Bank of America CEO, Fed Chairman Warsh Testifies" (Jul 14). Warsh confirmed the Fed held its main interest rate at 3.5–3.75% at his first meeting a month ago, and then delivered the opposite of a victory lap: "inflation's a choice... we monetary policymakers need to choose lower prices." He called the last five-plus years of high inflation "an unfair burden... a tax on the American people" and said getting rid of it needs "a regime change in policy." And he pointedly refused to hide behind world events: "There's no anguish in central banking here... you will not hear me blaming anyone else." Primary-source material. Translation: one soft report does not move this man. J.P. Morgan's team on At Any Rate (Jul 17) put a measuring stick on how hawkish the Fed's words have gotten: their in-house "hawkishness score" just posted "the most hawkish [two-week change] since 2022." Their conclusion is the crucial one for anyone betting on a dollar turn: the soft data is "a setback to the long dollar view in a tactical sense," but with the Fed still talking tough, "it's too early to throw in the towel on the bullish dollar view." The dollar, they argue, is actually "undershooting" where interest rates are pointing. So: cool data, hawkish words, and a dollar caught in between.

"Inflation's a choice... you will not hear me blaming anyone else."

Kevin Warsh, Fed chair

Citi's top FX strategist went lukewarm on the dollar, and named a trade against the Aussie. The single cleanest currency call of the week came from Dan Tobon, head of foreign exchange at Citigroup, on Bloomberg Surveillance, "June CPI and Kevin Warsh" (Jul 14). His firm has been bullish the dollar for a year, but he thinks the trade is now getting tired: "now that everybody's come on board to our side of things, we actually think that view might be getting a little bit crowded. It might be time to actually be thinking about a more neutral dollar outlook from here." His logic ties straight to Warsh: the market has "a lot priced in for the Fed. They're probably not going to deliver on it this year unless we get some real escalation" in the Middle East, and if the Fed doesn't hike, some of that "hawkish premium" comes out, giving a small dollar bump but not a big rally. Then he got specific. Asked for his single best idea, he said: "We're short Aussie against Brazil. We like the real against the Australian dollar." The reasoning is elegant: Australia and Brazil are both commodity exporters that move with the same global forces, so betting one against the other strips out a lot of noise and just leaves you collecting Brazil's much higher interest income ("carry") while you wait. Operator view. For our purposes, note what this is: a real desk, betting against the Australian dollar. He also dropped a constructive word on New Zealand: "a lot of Kiwis left their own country and you're starting to see people come back, [that] can often be a sign that things are starting to improve," the first even-slightly-bullish nod to the kiwi we've had.

China stayed soft, and it's the same story underneath. The demand engine for iron ore and the Aussie is China, and China's second-quarter growth came in at 4.3%, the slowest in more than three years, down from 5% in the first quarter. On CNBC's Fast Money (Jul 15), Longview Global's DeWardrick McNeil (a CNBC contributor) said not to expect a consumer rescue: households "are just not getting the help that they need... they are tightening their belts continually. So I do not see a rebalance towards consumption." The winners, he said, are the new-economy sectors (semiconductors, AI hardware, electric vehicles, green tech, robotics), while "the biggest loser here... are households," alongside property and old-line retail. His memorable line: Beijing is "managing a decline. It's messy." He also flagged something with a direct oil angle: China has been quietly hoarding crude, sitting on close to 1.4 billion barrels against roughly 2 billion barrels of storage capacity, and using that stash to keep fuel cheap at home, but "they can't continue this way forever." Operator/contributor view. For the Aussie and iron ore, this is the familiar headwind: China's growth is real but soft, and the part that buys the most raw materials, property, is exactly the part that's shrinking.

Copper became a genuine three-cornered argument. Copper matters here because it's Australia-adjacent and a read on global industrial demand, and this week three credible camps went at it. The tariff bulls: J.P. Morgan's commodities team, on At Any Rate, "Global Commodities: A sense of déjà vu" (Jul 10), argued the copper price (around $13,500 a ton) is being driven by US trade policy, not supply and demand. Washington is deciding whether to slap tariffs on imported copper, and the mere uncertainty has set off a "tug of war between the U.S. and China for copper units." Their base case: the Trump administration announces an "escalatory tariff scenario in the coming weeks," pushing copper toward $15,000 a ton in the second half of the year. As they put it, "escalation is everything." Operator view. The build-it-all bull: BCA Research's Marco Papic, on Stansberry Investor Hour (Jul 14), made the structural case: the AI and infrastructure boom is a physical thing that "costs copper and electricity and labor," and the world has run "smack dab straight into a cliff made of copper and steel." He noted the price needed to lure enough new copper mining into existence may have to roughly double, from about $5 to $10 a pound. Industrial metals, he said, have been "my favorite trade for the last 2 to 3 years" and still are. Operator/expert view. And the contrarian bear: Adam Rozencwajg of resource investors Goehring & Rozencwajg, on Top Traders Unplugged, "The Billion-Barrel Shock Has Not Arrived Yet" (Jul 15), threw cold water on the whole party: copper is at "all-time highs nominal, near all-time high real... everyone's bullish," but mine supply is "growing awfully quick," Chinese demand "has sort of stagnated in the last 18 months," and inventories are "up to 30-year highs." Operator view. Three smart people, three different answers, which is exactly why copper is worth watching rather than trading blind right now.

The one bright spot in the oil complex: the barrels are actually tight. Even in a soft-China week, the same Rozencwajg made the bullish oil case that matters for the petro-currencies (the Canadian dollar and Norwegian krone, which rise and fall with crude): unlike copper, "oil, the fundamentals look great, inventories are low and now drying, and no one's making any investment into the space. Prices are depressed and valuations are attractive." He kept hammering that the real bottleneck isn't the data centers, it's the energy to power them: "nobody wants to invest in the molecule." Operator view. That lines up with Chris Whalen of Whalen Global Advisors on The Julia La Roche Show (Jul 11), who pointed out US oil stocks are "down at the lowest level they've been in 20 years," with a growing shortage of refined products like diesel, and who reminded everyone the Iran conflict is still live, with fresh US strikes on Iranian "air defenses, radar, and anti-ship sites" this week. Operator/expert view. Crude has settled around $85 a barrel, off its recent spike but well above where it drifted a month ago. The takeaway for the loonie and the krone: the oil backdrop is quietly supportive, even if no one this week spoke either currency's name directly.

Australia's housing market is cooling, on purpose. A domestic drag on the Aussie: on Investing Compass (Jul 11), Morningstar Australia's Leslie Dois noted that after the government's tax changes aimed at housing affordability, national median house prices fell 0.9% in June, down 1.1% in Sydney, 1.4% in Melbourne, and 1.9% in Canberra. She was careful to add it's "a very short period of time" to judge. Pundit/educational, the price figures are factual. It's early, but a housing market that's rolling over is one more reason the Reserve Bank of Australia has room to eventually ease, which over time is a headwind for the currency.

The debate

The real argument this week isn't bull-versus-bear on China or oil. It's the same single question that decides the dollar, and therefore the fate of every currency here, but the terms have shifted. Last week it was "is Warsh actually a hawk?" This week Warsh answered by acting like one even after the data gave him an excuse not to. So the debate has moved to: does the strong dollar finally roll over, or is it just pausing before the next leg up?

The "it's rolling over / getting crowded" case. This is Citi's Dan Tobon on Bloomberg Surveillance (Jul 14): everyone finally loves the dollar, which is usually a sign the easy money's been made, so he's shifting to "a more neutral dollar outlook." The Fed has too much good news priced in and probably won't deliver the hikes, so some of that premium leaks out. He's not calling for a dollar collapse, just a top-ish, sideways dollar, which is enough to give the commodity bloc breathing room. The cool CPI is his supporting evidence.

The "still early innings" case. The pushback was unusually deep this week, from veteran FX strategist Marvin Barth on Street Signals, "US Productivity, From Greenspan to Warsh" (Jul 16). His argument: the dollar moves in huge, multi-decade cycles driven by American innovation booms. When the US invents something big, capital floods in and the dollar soars; only when that innovation spreads abroad does the dollar fall. And right now, he says, "we are absolutely without question in a productivity boom, and the Fed staff continues to deny it." His most concrete claim is about the "neutral" interest rate (the level that neither speeds up nor slows the economy). The Fed thinks it's about 1% after inflation; Barth thinks it's "hard to argue it's below 2%... could be as high as 3%," which would mean US interest rates belong at 4–5%, not lower. In plain terms: if he's right, rates stay high, and the dollar has no reason to fall. He thinks this cycle is unusually durable because the innovations "keep coming" (AI, robotics, space), and they're only happening in two places, the US and China. "We're still in early innings." Operator view.

Sitting in the middle, and tilting hawkish, is Chris Whalen on The Julia La Roche Show (Jul 11). He thinks the White House "has probably green-lighted at least one rate increase" before Labor Day just to protect Warsh's credibility, and he warns that parts of the economy are already running "close to double-digit inflation" because of oil, natural gas and diesel shortages. He cites the New York Fed's own survey showing consumers now expect 3.7% inflation a year out, "the highest in nearly three years." His view: the cool June print is noise; the inflation problem is still coming. Operator/expert view.

The honest read: this is a genuine, unresolved two-sided debate, and it's the whole ballgame for the bloc. If Citi is right, the Aussie, loonie and krone get room to breathe. If Barth and Whalen are right, the boot stays on. Everyone agrees on the mechanism: high US real interest rates drive the dollar, and the dollar drives these currencies. They just disagree on whether the cool data or the hawkish Fed wins. The next test is the Fed's late-July meeting, where, per J.P. Morgan, the hawkish tone is likely to repeat even if the policy doesn't change.

Trades in play

Two real, actionable expressions surfaced this week, more than we usually get.

Short the Australian dollar against the Brazilian real (Citi). This is Dan Tobon's single best idea on Bloomberg Surveillance (Jul 14). Both are commodity currencies that move with the same global tides, so pairing them cancels out most of the market risk and leaves you earning Brazil's much higher interest income while you wait. It's a bearish-Aussie view dressed up as a low-drama carry trade. The risk is obvious: if China surprises to the upside or the commodity cycle rips, the Aussie could catch a bid.

Own the carry, and lean toward the krone over the krona (J.P. Morgan). J.P. Morgan's FX desk, on both At Any Rate (Jul 17) and the prior week's At Any Rate, "Keep calm and carry on" (Jul 10), keeps hammering that with currency-market volatility at a five-to-six-year low, "carry is the only game in town," meaning: get paid to hold higher-yielding currencies and fund them with low-yielders. Their baskets deliberately own high-yield commodity exporters (that's our bloc) and fund with the Swiss franc and the yen. Within Scandinavia, they lean the krone (NOK) over the krona (SEK), more on that below. Operator views. The main risk they flag: a sudden jump in the Japanese yen (a favorite funding currency) could rattle the whole carry complex.

Read-throughs

Iron ore + BHP / Rio / Fortescue: no fresh iron-ore price call this week, so the read is indirect and soft: China's Q2 growth of 4.3% and a property sector that's still the "biggest loser" (Fast Money, Jul 15) are the demand backdrop, and it isn't improving. No bullish iron-ore desk showed up to argue otherwise.
WTI / Brent + Canadian energy (CNQ, SU, ENB): the barrels themselves are tight: inventories "low and now drying" (Top Traders Unplugged, Jul 15), US stocks at a 20-year low, Iran still live (Julia La Roche Show, Jul 11), with crude around $85. That's quietly supportive for the petro-currencies. But nobody spoke the loonie or any Canadian energy name directly this week, so the read is the commodity, not the currency or the stocks.
Copper: the week's liveliest debate, and it's three-sided: tariff-driven bull toward $15,000/ton (At Any Rate, Jul 10), structural bull (Stansberry, Jul 14), and a contrarian bear pointing at 30-year-high inventories (Top Traders Unplugged, Jul 15). A cluster of junior-mining chief executives, for example Copper Giant's Ian Harris on ITM Trading (Jul 16), calling "$20 copper... plausible," piled onto the bull side, but that's operators talking their own book; treat it as color, not a call.
The yuan as a China proxy: soft. China is "managing a decline," exporting its overcapacity to Europe ("China shock 2.0," with an EU-China flashpoint expected in October), and stockpiling crude rather than consuming it (Fast Money, Jul 15). A cautious cue for the whole bloc.
Norway / NOK: the Scandi silence finally broke. On At Any Rate, "Keep calm and carry on" (Jul 10), J.P. Morgan's James Nelligan noted Norway's core inflation dropped to 3% (below Norges Bank's own 3.3% forecast), yet pricing for the August central-bank meeting stayed firm, and if US inflation cooperates, "there's a bit of tactical room for [the krone] to recover a bit more" versus the krona and the euro. The krone is oil-sensitive, but he sees "a bit more two-way" now given the Iran situation. First real Norges Bank read in weeks (note: recorded Jul 10). Operator view.
Sweden / SEK: same J.P. Morgan episode, opposite conclusion: the krona used to be a way to bet on growth, but "we've transitioned over to a carry regime" where interest-rate gaps and "the dovishness of the Riksbank matter a lot more." They'd rather use Swiss-franc-based trades to play growth and treat the krona as a currency to fund with, not own. Sweden's solid 2% growth, they note, was already priced in earlier this year. Operator view. Nothing this week on the Swedish banks or commercial property specifically.
Equinor / Norges sovereign fund; MXN / Banxico: silent again. No Equinor or Norwegian-fund commentary, and the peso and Mexico's central bank went unmentioned: the Latin American carry darlings named this week were Colombia and Brazil, not Mexico. Noting the gaps rather than inventing them.
The China growth cue: soft, and consistent with last week: slow growth, shrinking property, belt-tightening households. No one made a China-reflation bull case this week.

What changed

Three things genuinely moved versus last week.

The big test resolved, and it split. Last week the whole bloc was waiting on the US inflation number and Warsh's testimony. Both arrived: the data came in soft, but Warsh stayed hawkish in tone. So the dollar's grip loosened a notch (enough that Citi's head of FX now calls the strong-dollar trade "crowded"), but the Fed's own words, and the structural strong-dollar case, kept it from actually breaking. The question flipped from "is Warsh a hawk?" (answered: yes, in tone) to "does the dollar roll over or just pause?"

A named view on the Aussie, and a nod to the kiwi. After weeks of the antipodean currencies being an afterthought, a real desk put its neck out: Citi is short the Australian dollar (against the Brazilian real) and sees turnaround value in New Zealand. That's more conviction on this pair than we've had in a while.

The Scandinavians finally showed up. For the first time in weeks, a serious desk actually put views on the krone and the krona: a tactical lean toward the Norwegian krone, and a "fund with it, don't own it" verdict on the Swedish krona. Small, but it's a pulse where there had been a flatline.

What didn't change: the US dollar is still the dominant force; oil is still elevated with Iran still simmering; China is still soft; and Canada, Mexico, Equinor and the Swedish banks are still missing from the conversation.