USD/CAD Open: 1.3224-28, Overnight Range: 1.3191-1.3233, Previous Close: 1.3192
WTI Oil open at $68.21 and gold open at $1,908.11. US markets are mixed today.
For today, USD resistance is at 1.3272. Support is at 1.3245.
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The Canadian dollar retreated yesterday and extended its losses overnight. The sell-off occurred in the wake of lower-than-expected Canadian inflation data and very robust US economic reports, which suggested that the Fed will continue hiking interest rates while the Bank of Canada may leave rates unchanged at its July meeting.
Canadian inflation rose just 0.4% m/m and 3.4% y/y in May, exactly as forecasted. However, it was the improvements in the core inflation readings that undermined the Canadian dollar. Core inflation rose only 0.2% compared to the forecasted 0.5% increase, while the annual rate rose 3.7% compared to expectations for a 3.9% increase.
Economists are divided on how the BoC will react to the news. One camp believes that the sharp improvement in core inflation in May and the drop in the BoC’s core measures (CPI-trim and CPI-median) suggest that policymakers will be content to leave rates unchanged as the lagging effects of previous rate hikes are showing results.
The other camp points out that the results remain too far above the BoC’s 2.0% target to allow for complacency. They expect another 25 basis point rate hike.
The domestic data was just one factor in the Canadian dollar’s slide. US Durable Goods Orders, higher New Home Sales, and strong Consumer Confidence suggest that the Fed can raise rates a couple more times and the economy will still avoid a recession. The outlook for higher US interest rates and the possibility that the BoC will leave rates unchanged sank the Canadian dollar.
EURUSD traded narrowly in a 1.0937-1.0962 range. Prices are supported by the hawkish ECB rhetoric coming out of Portugal, while gains were slowed by weaker than expected German Gfk Consumer Confidence survey.
GBPUSD retreated, falling from 1.2751 in Asia to 1.2687 in early NY, with prices weighed down by hawkish ECB comments suggesting that the UK’s interest rate advantage over the ECB will narrow sharply.
USDJPY rallied to 144.25 from 143.74, extending yesterday’s US data-fueled gains. Traders are driving USDJPY higher, daring the BoJ to intervene or tighten monetary policy.
AUDUSD dropped from 0.6688 in Asia to 0.6620 in NY following news that May inflation plunged to 5.6% from 6.8% in April. The lower-than-expected result led to traders paring back rate hike expectations.
US Economic Calendar: Goods Trade Balance and Wholesale Inventories.
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