Canadian Dollar Update, August 18, 2021 – Canadian Dollar Awaits July Inflation Numbers
USD/CAD Open: 1.2622-26, Overnight Range: 1.2606-1.2639, Previous Close: 1.2626
WTI Oil is at $65.75 and gold is at $1,785.00. US markets are mixed today.
For today, USD resistance is at 1.2672. Support is at 1.2613.
• Canada CPI expected at 3.4% y/y in July
• FOMC minutes from July 28 meeting due at 2:00 pm ET
• US dollar opens, consolidating yesterday’s gains.
The Canadian dollar tested support yesterday and recouped some of Tuesday’s losses overnight. The Loonie continues to be undermined by lingering negative risk sentiment and concerns the Fed will begin tapering ahead of plan. The slide in oil prices from $77.27/barrel at the beginning of July to $67.40/b in NY today exacerbated Canadian dollar selling pressure.
Canadian dollar direction is dictated by global risk sentiment and the outlook for the Fed. Seven FOMC members suggested that QE tapering should be started by year-end, which contradicts Fed Chair Powell’s outlook.
Yesterday, Mr. Powell said the effects of COVID-19 on the economy continue to be uncertain, and that millions of service sector workers are still unemployed.
Boston Fed President Eric Rosengren added his voice to the chorus suggesting another strong employment report would satisfy the Fed’s dual mandate.
The FOMC minutes from July 28 will be studied for additional insight into the Fed’s tapering plans. If they are thought to be hawkish, it may spark renewed US dollar demand.
EURUSD consolidated yesterday’s losses in a 1.1703-1.1729 range, ahead of the FOMC minutes. Eurozone CPI was confirmed at 2.2% for July, which was ignored. Germany sold 30-year bonds at negative rates (an average of -0.04%) for the first time ever. EURUSD technicals are bearish below 1.1800.
GBPUSD climbed from 1.3733 to 1.3762. UK inflation dipped to a lower than expected 2.0% y/y in July, which was offset by higher-than-expected PPI data. ING economists suggest the drop in inflation is a temporary set-back and are forecasting CPI to climb well above 3.0% later in 2021. GBPUSD needs to break above 1.3780 or risk further losses.
USDJPY continues to recoup losses sustain since last Friday. USDJPY climbed to 109.68 from yesterday’s low of 109.10. Prices were supported by steady US Treasury yields and traders ignored mixed Japanese data.
NZDUSD had a wild night, dropping from 0.6940 to 0.6871, after the RBNZ decided against a 0.25% rate hike. The sharp spike in COVID-19 Delta-variant cases from 0 to 1, led to the government locking down the entire country, and forced the RBNZ to delay their planned rate increase. However, NZDUSD quickly recovered after the RBNZ statement suggested interest rate hikes are still on the agenda. The rebound was short lived and NZDUSD is trading close to the overnight low in NY.
US Housing Starts and Building Permits are due today, as well as the FOMC minutes from the July 28 meeting.
Today’s Suggested Range USD/CAD: 1.2580 – 1.2680