The Canadian dollar is probing resistance in the USD/CAD $1.3180-$1.3200 zone. Some traders were hoping that higher-than-expected domestic inflation in September will be the catalyst to ignite a fresh Canadian dollar rally. The Consumer Price Index (CPI) was forecast to rise 2.1%y/y in September compared to August’s 1.9% y/y increase. Some analysts warn of an upside surprise to the data although others point to seasonal declines which should limit gains. Nevertheless, if the information is "as expected" or better, it may be enough to ensure that the Bank of Canada leaves interest rates unchanged at the October 30 monetary policy meeting.
The clock is ticking down to the October 31 Brexit deadline, making sterling the key focus for FX traders. GBP/USD soared since last Thursday, rising from $1.2205 to $1.2787 overnight as the prospects for a "no-deal" Brexit fade. U.K. Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar said they made progress on the Irish border issue, which triggered the rally. However, gains were capped after an Irish DUP spokesman expressed several concerns about the border proposals. Traders ignored a host of U.K. economic data releases.
Elsewhere, AUD/USD and NZD/USD came under pressure from disappointment around the state of the U.S. and China trade talks. China may have said they would increase purchases of U.S. agricultural products, but they haven’t provided any more details. Those promises were made last spring but never bore fruit, and the lack of information is disconcerting. The Americans haven’t removed any tariffs but merely delayed a tariff increase which seems unlikely to spur the Chinese authorities to act.
AUD/USD dropped from $0.6754 to $0.6720 while NZD/USD fell to $0.6270 from $0.6318. Kiwi came under added selling pressure despite a tick higher in September CPI results, in part because the earlier GlobalDairyTrade auction was weak.
USD/JPY consolidated gains in a 108.60-108.85 range following a sharp uptick in U.S. Treasury yields. The 10-year Treasury yield hit 1.775% after being as low as 1.685% on Tuesday, thanks to the improved outlook for Brexit.
EUR/USD climbed to $1.1059 from $1.1024, bolstered by GBP/USD gains, but still unable to break resistance at $1.1060. Eurozone inflation did not do the single currency any favours. September CPI rose 0.8% y/y compared to the 1.0% result seen in August. The data helps reinforce the sentiment that the European Central Bank will maintain an easy monetary stance for the foreseeable future.
Traders are patiently awaiting this mornings U.S. Retail Sales report which is expected to rise 0.3% in September. The Canadian dollar will track broad U.S. dollar moves following the release.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
