The Canadian dollar is consolidating Friday’s gains with surging oil prices helping to offset broad U.S. dollar demand from rising U.S. Treasury yields.
USD/CAD bounced between $1.2335 Friday and $1.2408 in early European trading today before retreating to $1.2391 in early Toronto trading. USD/CAD jumped in Asia after global risk sentiment took a turn for the worse.
Bank of England (BoE) Governor Andrew Bailey turned the focus to interest rates after weekend comments suggesting rising inflation could force the BoE to tighten policy.
He said "Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." And in case traders were not getting the message he added, "And that’s why we at the Bank of England have signaled, and this is another such signal, that we will have to act."
Those inflation concerns hit home in New Zealand when Q3 inflation data showed Consumer Price Index surged to 4.9% y/y, from 3.3% previously. The rise was the fastest pace in 10 years, leading some analysts to predict that the Reserve Bank of New Zealand will raise rates by another 1.0% in the coming months.
Weaker than expected China data exacerbated global growth fears. Q3 GDP rose 4.9% y/y compared to expectations for a 5.0% increase. Industrial Production also disappointed, rising 3.1% compared to 5.3% previously.
Traders were not impressed by comments from the Peoples' Bank of China (PBoC) governor suggesting that authorities could contain the risks to the economy. Traders are worried about China’s property sector woes.
West Texas Intermediate oil prices continued to rally, touching $83.85 in early New York, a rise of 2.6% from Friday’s low. Prices continue to be underpinned by expected supply shortages in Q4, which will be exacerbated if forecasts for colder than usual weather prove accurate.
The surge in oil prices limited Canadian dollar losses due to rising interest rate fears.
EUR/USD is rangebound, drifting inside the 1.1671-1.1726 range that contained price action since last Tuesday. ECB President Lagarde repeated comments that inflation gains were transitory, which weighed on prices.
GBP/USD gains on the back of the hawkish BoE Governor's comments were limited due to concerns about the negative impact to domestic growth from the U.K. energy crisis and the ongoing EU/UK Brexit dispute over the Northern Ireland border.
There are not any top tier U.S. economic releases today. The Bank of Canada releases the quarterly Business Outlook Survey which is expected to be upbeat.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
