The Canadian dollar rallied yesterday and consolidated those gains overnight. Yesterday, USD/CAD fell from $1.2697 just before the release of the Canada August inflation report to $1.2614 after the data came out hotter than expected.
Statistics Canada reported, "August CPI Consumer Price Index (CPI) rose 4.1% on a year-over-year basis in August, the fastest pace since March 2003, up from a 3.7% gain in July. The increase in prices stems from an accumulation of recent price pressures and lower price levels in 2020. Excluding gasoline, the CPI rose 3.2% year over year. The monthly CPI rose 0.2% in August, down from a 0.6% increase in July. On a seasonally adjusted monthly basis, the CPI rose 0.4%."
Analysts were expecting an increase of 3.9%. The Bank of Canada warned of elevated inflation due to transitory effects from pandemic measures. However, some analysts suggest that inflation may not retreat as low as the BoC expects, forcing it to re-evaluate its interest rate outlook.
The Canadian dollar rally got a helping hand from surging WTI oil prices. The Energy Information Administration (EIA) reported a more significant than expected crude inventory drawdown, which coupled with weather-related supply disruptions underpinned prices.
Global risk sentiment is mixed today. The major Asia equity indexes were down due to ongoing issues in China. Another major Chinese property developer reported financial difficulties, weighing on investor confidence that is already rattled by the government regulatory crackdown.
Traders were also spooked by a new area of China/U.S. tension. Australia, the U.K., and the U.S. signed a security partnership to counteract China’s military aspirations in the area. Beijing is not happy.
EUR/USD is consolidating losses after breaking support at $1.1800 overnight. The dovish European Central Bank outlook, which was reinforced today by another policymaker, continues to pressure prices. Finnish Central Bank governor Olli Rehn said that an interest rate hike is not in sight as euro area growth still needs monetary policy support.
GBP/USD traded in a $1.3808-$1.3851 band. Yesterday hotter than expected U.K. inflation data supported Bank of England hawks and helped counteract GBP/USD selling pressure from broad US dollar strength.
AUD/USD suffered from weak employment data and falling iron ore prices. NZD/USD got a lift from better than expected Gross Domestic Product data but couldn’t sustain the gains.
U.S. Retail Sales, weekly jobless claims and Philadelphia Fed Manufacturing reports are due.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
