The Canadian dollar ignored yesterday’s hotter-than-expected inflation number, Canada July Consumer Price Index surged to 3.7% y/y in July, compared to a 3.1% rise in June. Many analysts suggested the gains were due to base effects but warn that inflation is picking up momentum. FX traders were unconcerned and USD/CAD barely budged.
That changed after 2:00 pm ET when the minutes from the July 28 Federal Open Market Committee meeting were released. Traders zeroed in on the passage that said: "most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s substantial further progress" criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum employment goal.”
Wall Street sold off with the Dow Jones Industrial Average closing down 383 points, oil prices falling, and the U.S. dollar in demand.
The trend continued in Asia with Fed tapering concerns piling on fears from spreading coronavirus Delta-variant cases in Asia and other regions, China’s regulatory crackdown on various sectors, and geopolitical concerns from the Taliban takeover of Afghanistan.
West Texas Intermediate (WTI) oil prices dropped 3.0% overnight, continuing the slide from July 6 when prices topped out at $76.75/barrel. The combination of production increases by the Organization of the Petroleum Exporting Countries ahead of a potential global economic slowdown due to the resurgence of COVID-19 is weighing on crude and undermining the Canadian dollar.
The Canadian dollar may have come under additional selling pressure in Asia.
The U.S. dollar opened in New York with gains against the major g-10 currencies but gave back some gains due to profit taking in early New York trading.
U.S. Philadelphia Fed, Manufacturing Purchasing Managers Index and weekly jobless claims are ahead.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
