Canadian Dollar Update, August 17, 2022 – Canadian Dollar has Negative Bias
USD/CAD Open: 1.2904-08, Overnight Range: 1.2891-1.2927, Previous Close: 1.2902
WTI Oil open at $88.98 and gold open at $1,775.77. US markets are mixed today.
For today, USD resistance is at 1.2931. Support is at 1.2893.
- Loonie gains post-CPI fade
- FOMC minutes ahead
- US dollar opens on mixed note
The Canadian dollar rallied after inflation appeared to be cooling in Canada. July CPI rose just 0.1% m/m and 7.6% y/y. The results unleashed a torrent of “inflation has peaked” chatter which helped drive USDCAD from 1.2910 to 1.2830.
A 9.2% m/m drop in gas prices was the big reason why inflation fell, however the sanctions on Russian oil will be in place for a long time, which will put a floor under West Texas Intermediate (WTI) prices.
Nevertheless, the inflation drop won’t deter the Bank of Canada from raising rates in September. The BoC uses three inflation gauges to help provide them with a clear inflation picture. Those gauges are, CPI-tri, CPI-median, and CPI-common. Of the three, CPI-common is their preferred gauge.
The BoC says CPI-common is a measure of core inflation that tracks common price changes across categories in the CPI basket. It uses a statistical procedure called a factor model to detect these common variations, which helps filter out price movements that might be caused by factors specific to certain components.
CPI-common surged 0.9% from 4.6% in June to 5.5% in July, which leaves the door open to another 75 basis point rate hike in September.
Inflation was the big story in Great Britain today as it reached a 40-year peak in July, rising 10.1%. GBPUSD rallied to 1.2141 on the news, underpinned by talk of aggressive Bank of England rate increases. However, the gains evaporated as the focus shifted to the release of the FOMC minutes and the path of US interest rates.
EURUSD traded in a 1.0151-1.0186 range as it continues to consolidate Monday’s losses. Eurozone Q2 GDP ticked lower (Q2 actual 3.9% vs forecast 4.0% y/y), and Eurozone employment rose 0.3% in Q2.
USDJPY climbed to 134.98 from 133.92, underpinned by a rebound in the US 10-year Treasury yield, which rose from 2.793% to 2.869%. Japanese Machine Orders and Trade data were mixed but not factors for FX traders.
AUDUSD traded sideways in Asia then dropped from 0.7025 to 0.6946 in NY due to position adjusting ahead of the FOMC minutes.
NZDUSD rallied from 0.6325 to 0.6382 in the wake of the RBNZ hiking rates by 50 bps. The statement was on the hawkish side as the Bank promised another 100 bps of hikes in 2022. However, broad US dollar demand ahead of the FOMC minutes knocked NZDUSD from 0.6382 to 0.6286 in NY.
US Retail Sales are expected to rise by 0.1% m/m.
Today’s Suggested Range USD/CAD: 1.2850 – 1.2950