Newsletter · · Ashutosh Agarwal

Rate Hikes Are Back and the Dollar Bit Back - Commodity FX: AUD, CAD, NOK & NZD - Week of September 5, 2026

Commodity FX for the week of September 5, 2026: a hawkish Warsh and a hot US jobs report put a September Fed hike back on the table and firmed the dollar, the Aussie finally found a home-grown story, and the kiwi fell even as New Zealand hiked.

Commodity FX: AUD, CAD, NOK & NZD

Week of September 5, 2026: Rate Hikes Are Back and the Dollar Bit Back

For a month, this letter told one story: the US dollar was sliding, and a soft dollar is oxygen for the currencies of the countries that dig things up and pump things out, the Aussie, the loonie, the kiwi, the krone, the krona. Last week we called a falling dollar "the bloc's lifeline."

This week the lifeline got yanked.

America's new central-bank boss, Kevin Warsh, used his big set-piece speech to say inflation is still too high and the Federal Reserve isn't done. Over the following days the market did something it hasn't done in a long time: it started betting the Fed's next move is a rate hike, not a cut, with odds jumping past one-in-two. Government borrowing costs shot up all over the world. And the dollar, instead of drifting lower, firmed. For a group of high-octane exporter currencies, a Fed that might raise rates is a headwind, not a tailwind.

But here's the twist that makes this week interesting rather than just gloomy: the Australian dollar finally got a story of its own. Not "the Aussie went up because the dollar went down" but an actual, home-grown reason to own it. More on that below.

TL;DR

  • The Fed just flipped the mood. Warsh's hawkish speech and a red-hot US jobs report (162,000 new jobs versus 53,000 expected) pushed the odds of a September US rate hike to around 60%. Yields spiked worldwide; the dollar firmed. The one thing propping up this whole bloc, a weak dollar, is suddenly a two-way bet.
  • The Aussie found its own legs. Australia's economy grew faster than anyone expected last quarter, and traders now think Australia's central bank could hike in September. The Aussie climbed back above 72 US cents. For once it isn't just riding the dollar's coattails.
  • New Zealand shows the catch. New Zealand's central bank actually raised rates this week and hinted at more, and the kiwi fell anyway. When the whole world is repricing higher together, a small country hiking rates gets no reward for it.
  • Canada's retaliation lands Tuesday. Canada's counter-tariffs on about $30 billion of US goods take effect September 8. A University of Calgary economist says it's not really "dollar-for-dollar" but closer to 60 cents on the dollar, and will nudge Canadian prices up about 0.25%, hitting the poorest households three times harder than the richest.
  • The job-loss math got worse. National Bank now pegs 100,000 to 130,000 Canadian jobs at risk if the tariffs stick, up from the roughly 90,000 estimate we cited last week. BMO sees half a percentage point shaved off Canada's growth.
  • A well-known investor bets it all blows over. Kevin O'Leary flipped bullish on Canada's PM, calling the fight "political theater" and predicting a deal within 60 to 90 days because "he cannot sustain 50% tariffs."
  • China keeps sinking. Two academics laid out the numbers behind the slump: property investment down 19%, home prices about 20% below their peak, total debt at a staggering 315% of GDP. "A vicious circle." This is the ultimate buyer for the bloc's ore, crude and milk.
  • Copper took a breather. After hitting record highs in August (up more than 50% on the year), copper eased back toward $6.60 a pound as the firmer dollar and higher yields bit, though the long-run shortage bulls are unbowed.

What's new

The Fed changed the weather. The single biggest shift this week didn't come from any of our five currencies, it came from Washington. New Fed Chair Kevin Warsh, who'd underwhelmed markets in his first months, used the Jackson Hole gathering to plant a flag: inflation is still too hot, and the Fed has more work to do. The reaction was immediate and, for this letter, uncomfortable.

On LPL Research's Market Signals (Sep 1), Chief Economist Dr. Jeffrey Roach summed up the market's read in five words: "the dollar rallied on that news." On Saxo's Market Call (Aug 31), Saxo strategist John Hardy noted the market had been pricing rate cuts, and Warsh's speech flipped that, pushing the odds of a September hike to around 60% and shoving short-term US yields higher. Money Tree Investing (Sep 2) put a number on the swing: the market-implied chance of a September hike leapt from 35% to over 55% right after the remarks. (These are bank and independent strategists, insider and pundit voices reading the same tape the same way.)

Then, on Friday, the data slammed the door. On The Rundown (Sep 4), Zaid Admani flagged an August jobs report that blew past expectations, 162,000 jobs added versus 53,000 forecast, lifting the hike odds back toward 60% and, in his words, "removing the labor market as an excuse for the Fed not to hike." Why does a US jobs number matter to the Aussie or the loonie? Because when US rates rise, dollars earn more, so money flows into the dollar and out of everything else, including the exporter currencies this letter follows.

The whole bloc spent August leaning on a falling dollar. This week a hawkish Fed chair and a hot jobs report turned that prop into a question mark.

The one clean, home-grown bright spot: the Aussie. For weeks, the Australian dollar couldn't get a sentence in edgewise, it just floated on whatever the US dollar did. This week that changed. On NAB's Morning Call (Sep 2), NAB's strategists walked through a genuinely strong Australian growth report: the economy expanded 0.4% in the second quarter versus a 0.3% forecast, and 2.1% over the year versus 1.8% expected. Households opened their wallets, with consumer spending up 0.4%, led by a 10%-plus jump in vehicle purchases (mostly electric cars, as drivers dodge high fuel costs). The upshot, per NAB: nothing here tells Australia's central bank to stop, and the bank now looks likely to hike in September. A day later, on NAB's Morning Call (Sep 3), NAB's Rodrigo Catril noted the Aussie had climbed 0.5% to just over 72 US cents. (NAB's own strategists, insider commentary from a bank that trades this currency.)

Not everyone is impressed. On JPMorgan's At Any Rate (Sep 4), the bank's Antipodean strategist called the sudden bet on a rate hike "the real surprise here," but was skeptical it helps the Aussie for the right reasons: "I do think we're into the kind of bad hikes territory for Aussie, just in the sense that we've already seen a pretty broad weakening in the activity side of the data," with housing and the labour market softening underneath the headline. A "bad hike," in plain English, is a central bank raising rates into a slowing economy because it's scared of inflation, not because things are booming. Watch, JPMorgan says, for speeches by Australia's deputy and assistant governors next week. (Sell-side, insider, and usefully a dissenting one.)

New Zealand is the cautionary tale. If you want proof that a strong dollar overwhelms everything else right now, look at the kiwi. On The KE Report (Sep 4), veteran currency strategist Marc Chandler pointed out that New Zealand's central bank raised interest rates 25 basis points this week and signaled another hike is coming, and the New Zealand dollar fell, ending the day "the weakest currency," off nearly eight-tenths of a percent. JPMorgan's At Any Rate (Sep 4) explained the mechanics beautifully: the kiwi's problem all year hasn't been its own central bank, it's been the world. "When you're already expecting a pretty steep hiking cycle, you don't really have anywhere to go when the world goes through these hawkish bouts." A country that's already promised to raise rates has no surprise left to offer. (Two respected FX strategists, insider and expert.)

Canada: the retaliation lands Tuesday. The story we've been tracking for a month comes to a head on September 8, when Canada's counter-tariffs finally bite. The cleanest recap came from The David Lin Report (Aug 29): after Washington slapped 50% tariffs on about $20 billion of Canadian goods on August 22 (using an obscure 1930s trade law), Canada answered with tariffs of 15%, 25% and 50% on more than 700 US products, covering steel, dairy, appliances, electronics and seafood, timed for the Tuesday after Labor Day. Prime Minister Mark Carney, in a clip on that episode: "We cannot accept what they've offered and we will not give what they've asked. Canada will match Washington's new tariffs dollar for dollar."

Except it isn't quite dollar-for-dollar. On Hub Podcasts (Sep 2), University of Calgary economist Trevor Toome did the arithmetic: Canada's response averages about 30% across the goods it's hitting, "roughly $0.60 of response for every dollar of U.S. tariff. While not full dollar-for-dollar, as the government frames it, it is still a large response." His estimate of what it costs Canadians: consumer prices up about 0.25%, a nearly $4 billion hit, which he says is the equivalent of a $10-a-barrel jump in oil prices. And it's regressive: households earning under $30,000 lose more than 0.5% of their spending power, "over three times larger than the hit to households earning above $150,000." Toome's blunt verdict on retaliating at all: "I tend to think it's unwise, despite its popularity." (Academic expert, an economist's model rather than desk positioning.)

The job-loss numbers are climbing. Last week we cited an estimate of roughly 90,000 Canadian jobs at risk. This week it got bigger. On Hub Podcasts (Aug 31), a roundup of the big Canadian banks' research laid out two camps. The optimists: Scotiabank's Derek Holt figures the damage stays in a few sectors rather than spreading across the economy, sees no real move in the national jobless rate, and reads Ottawa's two-week delay before retaliating as a deliberate off-ramp, still leaning toward 2% growth in 2027. The pessimists: National Bank's Stéphane Marion and Mathieu Arsenault estimate 100,000 to 130,000 jobs at risk if the tariffs hold and governments don't cushion the blow, lifting unemployment about half a point from 6.4%. They note the average tariff rate on Canadian goods roughly doubles to about 6%, nudging Canada, remarkably, above Mexico's rate. On Markets Plus (Sep 4), BMO's economists put the growth hit at "about half a percentage point" and made the structural point that matters most: the 50% tariffs carry no exemptions for goods covered by the USMCA trade pact, so "the dam of the protection of USMCA has kind of broken." Before this, roughly 85% to 90% of what Canada sent south was tariff-free. (All bank economists, insider and book-informed views.)

The contrarian: a big-name investor says relax. Not everyone thinks this ends badly. On the ITM Trading Podcast (Aug 31), celebrity investor Kevin O'Leary said he'd flipped to bullish on Canada and its prime minister. His read: the whole fight is political theater tied to a separatist referendum in Alberta, and once that passes, Carney "go[es] right back to Washington, cut[s] that deal, because he cannot sustain 50% tariffs on the Canadian economy. That will put the country into a recession. And he knows it." O'Leary frames a "16-to-90-day" window to buy Canadian assets "at the bottom," pointing to a September 14 conference where Carney is courting the world's sovereign wealth funds. (Pundit, a celebrity investor talking his book; treat the timeline as opinion.) It's the mirror image of the bank economists, and worth holding in your head as the optimistic case.

China keeps getting worse, and now we have the receipts. The demand side of everything this bloc sells looks shakier by the week, and this week two economists spelled out exactly why. On VoxDev (Sep 2), academics Kaiji Chen and Tao Zhu laid out China's property bust in hard numbers: real estate investment down 19% over the year to July, home prices about 20% below their peak, and total debt in the economy at a jaw-dropping 315% of GDP. The mechanism they described is a doom loop: Chinese families felt rich because their homes kept rising, so they spent; now homes are falling, they feel poorer and spend less; meanwhile local governments that lived off selling land have no money to prop things up. "That's a vicious circle." Worse, they warned, "each new stimulus is going to produce less growth and more debt," so Beijing can't simply spend its way out. For Australia's iron ore, Canada's crude and New Zealand's milk, this is the customer quietly going quiet. (Academic experts.)

New Zealand's milk: an unusual split. The one concrete New Zealand data point came from Let's Chat Dairy (Sep 4), where HighGround Dairy's Alyssa Badger reported on Tuesday's global dairy auction. The result was lopsided: whole milk powder fell more than expected, while skim milk powder rose strongly as Southeast Asian and North Asian buyers snapped up bulk volumes, an inversion between the two products "not seen since September 2022." In the background, Europe is having a rough harvest (the EU's corn crop is heading for a 20-year low, France's grain for a 40-year low) and a cattle virus is nibbling at milk output in Germany, France and Switzerland, all of which tightens global supply and, at the margin, supports the prices New Zealand lives on. (Operator-grade market analysts.)

Copper cooled off. After a scorching August of record highs, up more than 50% on the year (Equity Mates, Aug 30), copper took a step back this week, exactly as you'd expect when the dollar firms and yields rise. On Stock Market Today (Sep 1), a copper ETF was noted down 2.3%, testing a key support level "on higher yields and dollar strength." But the long-run bulls didn't blink. On The KE Report (Sep 3), analyst John Rubino pegged copper around $6.60 a pound and reaching for $7, with miners throwing off cash even as their output stalls. And 10-Minute Contrarian (Aug 30) rattled off the structural case: an electric car needs 83kg of copper against 23kg for a gas car, the data-center buildout is only 20% to 30% done, and mine grades have halved since 2000 while big mines keep breaking down. (Independent analysts and pundits; treat the price levels as data, the multi-year thesis as opinion.)

The debate

Be honest about what the podcasts actually served up this week: not a tidy bull-versus-bear shootout, but a genuine turn in the weather with credible voices on each side.

The bear case (the dollar prop is gone). This is the case with the freshest wind behind it. A hawkish Fed chair and a hot jobs report have markets betting on a US rate hike, the dollar has firmed, and global borrowing costs are spiking (LPL, Sep 1; Saxo, Aug 31; The Rundown, Sep 4). New Zealand is the live demonstration: even a central bank that's hiking couldn't stop its currency falling, because the whole world is tightening at once (KE Report, Sep 4; At Any Rate, Sep 4). Layer on China's balance-sheet recession (VoxDev, Sep 2) and Canada's tariff hit landing Tuesday (Hub, Sep 2), and the props are wobbling.

The bull case (pick your currency). The optimistic side this week is less about the dollar and more about picking the right currency. The Aussie now has a genuine domestic engine, a strong economy and a central bank leaning toward hiking for good reasons of its own (NAB, Sep 2). And on Canada, the loudest bull, Kevin O'Leary, argues the tariff war is unsustainable theater that resolves in a deal within a few months (ITM, Aug 31), a view echoed, more soberly, by the bank economists who see the damage as sectoral rather than economy-wide (Hub, Aug 31).

Where it nets out: the easy trade, "own the exporters because the dollar's falling," is on hold. The dollar is now a two-way fight. What's left is a stock-picker's market within the bloc: the Aussie has its own reason to rise; the kiwi is hostage to the world; and the loonie's fate rides on whether Tuesday's tariffs are the start of a long grind or the last act before a deal.

Read-throughs

  • Iron ore and the big Australian miners (BHP, Rio Tinto, Fortescue): the read-through is indirect and negative. China's property bust, with investment down 19% and prices about 20% below peak, is the demand backdrop for Australia's biggest export (VoxDev, Sep 2).
  • WTI / Brent and Canadian energy (CNQ, SU, ENB): oil firmed this week (Stock Market Today, Sep 1). The richest energy discussion came from ARC Energy Ideas (Sep 1), where Jackie Forrest and Peter Tertzakian argued against Canada weaponizing its energy exports: the North American grids are too intertwined, and cutting the US off would boomerang (Canada was briefly a net electricity importer from the US in late 2025; Ontario depends entirely on US-transported crude, Quebec about 60%). Their real point: tariffs on either side force Canadian oil to sell at a discount because Canada lacks alternative export routes, an argument for the West Coast pipeline and the Trans Mountain expansion. Note Canadian energy has again been carved out of the tariff fight, since the US doesn't want to tax the crude, gas and potash it needs.
  • Copper: the standout that cooled, with record highs in August and then a roughly 2% pullback as the dollar firmed (Stock Market Today, Sep 1), holding around $6.60 with the multi-year shortage thesis intact (KE Report, Sep 3; 10-Minute Contrarian, Aug 30). A useful reminder that copper trades with the dollar in the short run and with the electrification story in the long run.
  • The yuan and the China cue: clearly soft, and now backed by hard analysis, a property-led balance-sheet recession that stimulus can't easily fix (VoxDev, Sep 2). The single most important negative for the whole bloc's demand story.
  • MXN as fellow USMCA peso: a genuine bright spot and, notably, a divergence from the loonie. Marc Chandler flagged the Mexican peso at "new multi-year highs" (KE Report, Sep 4), as global investors kept their high-yield carry trades on but simply switched to funding them with cheap dollars instead of yen. The peso is thriving even as its USMCA partner, the loonie, wears a tariff cloud, a reminder that "USMCA peer" is not one trade.
  • Canada 5-year yield and housing: a concrete, under-the-radar pain point. On The Loonie Hour (Sep 4), the hosts flagged Canada's 5-year government yield, the benchmark for mortgages, hitting 3.42%, a new high for the year, in a massive mortgage-renewal year, meaning fixed mortgage rates are set to rise just as the economy softens. Part of a worldwide yield surge (Japan's 10-year hit 3% for the first time since 1996; France's 30-year the highest since the financial crisis). IceCap's Keith Dicker: "the bond market is going to ruin people."
  • New Zealand dollar and dairy: covered above, the auction split (skim milk powder up, whole milk powder down) and a tightening global supply picture (Let's Chat Dairy, Sep 4).

What changed

The dollar story flipped from tailwind to two-way. For a month the through-line was "a falling dollar carries the whole bloc." This week a hawkish Fed chair and a hot jobs report put a US rate hike back on the table, sent yields surging worldwide, and firmed the dollar (LPL, Sep 1; Saxo, Aug 31). The single biggest driver of these currencies just stopped pointing in one direction.

The Aussie graduated from passenger to protagonist. For weeks the Australian dollar couldn't earn a sentence of its own. This week a strong growth report and a live bet on a September rate hike gave it a genuine domestic story (NAB, Sep 2), even if JPMorgan warns it may be a "bad hike" into a slowing economy (At Any Rate, Sep 4).

Canada's damage estimate grew, and the "dollar-for-dollar" label got corrected. Last week's roughly 90,000 job-loss figure is now 100,000 to 130,000 per National Bank (Hub, Aug 31), and an economist clarified the retaliation is really about 60 cents on the dollar, not the full matching the government advertises (Hub, Sep 2). One genuinely new data point: Canada's central bank held rates at 2.25% for a seventh straight meeting with a hawkish tilt (NAB, Sep 2).

China moved from "arguably worse" to "diagnosed." Last week the China worry was a set of grim monthly figures. This week two economists put the whole doom loop on the table, complete with a 315%-of-GDP debt number and a warning that stimulus now buys less growth and more debt (VoxDev, Sep 2).

What didn't change: China is still the cloud over everything the bloc sells, and the US dollar still sets the tempo.