The Canadian dollar drifted sideways in a narrow range overnight. The monthly inflation report from Statistics Canada is on tap today. April Consumer Price Index is expected to rise 2.0% compared to March’s 1.9% increase. Core CPI is forecast at 1.8% compared to 1.6% previously. Rising gasoline prices are behind the increase. Higher than expected inflation data will downgrade risks that the Bank of Canada will cut interest rates this year.
It is a busy day for U.S. data, although the jury is still out as to whether the reports will distract markets from the ongoing U.S./China trade war and rising tensions in the Middle East. The data includes April Retail Sales, (forecast 0.2% vs March 1.6%) Empire Manufacturing Index, (forecast 8.5 vs April 10.1) as well as Industrial Production and Capacity Utilization data. Better than expected reports will help alleviate Wall Street concerns that the trade dispute may spark a recession. They could also shift sentiment into a more risk-friendly environment which would benefit the Canadian dollar.
Weaker than expected China economic data undermined both the Australian and New Zealand dollars during the Asia session. China’s April Retail Sales fell to 7.2% from 8.7% in March while Industrial Production declined to 5.4% from 8.5% during the same period. Traders viewed the data as evidence that the US trade sanctions were taking a toll on the Chinese economy, which would also drag global growth lower.
AUD/USD attracted additional selling pressure when wage inflation data was weaker than expected, elevating Reserve Bank of Australia rate cut fears.
USD/JPY traded lower due to continuing safe haven demand from the China/U.S. trade war and rising tensions between Iran and the U.S. Falling U.S. Treasury yields also undermined the currency pair.
EUR/USD is under pressure in early Toronto trading as the rising risk of a prolonged trade war underpin the U.S. dollar against the G10 major currencies. Today’s euro-zone Gross Domestic Product data was as expected, and the single currency didn’t see any benefit.
GBP/USD has fallen steadily since Monday and extended those losses in early Toronto trading. General demand for U.S. dollars and heightened fears of a "no-deal" Brexit are driving the currency pair lower.
Oil prices fell after the American Petroleum Institute reported weekly crude inventories climbed by 8.6 million barrels in the week ending May 10. The negative impact from the data was derailed to a degree by rising Middle East tensions. The U.S. continues to express concerns about "threats" from Iran and traders fear a supply disruption is possible.
Domestic data will influence today’s Canadian dollar direction, but risk aversion concerns will be the dominant theme.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
