- Canada’s May inflation report is due today
- Fed Chair Powell testifies before Congress
- US dollar rallies on negative risk sentiment
USDCAD Snapshot: open 1.2978-82, overnight range 1.2919-1.2995. close 1.2918, WTI open $104.23, Gold open $1,828.71
The Canadian dollar rally stopped in its tracks overnight after news of fresh Covid lockdowns in China soured risk sentiment.
Chinese officials announced that most public services in the gambling mecca of Macau would be closed until Friday, and that most entertainment venues in the city of Zhuhai would also be shuttered.
The news knocked the major Asian equity indexes down, led by a 2.56% plunge in Hong Kong’s Hang Seng index. European bourses fell as well. The German Dax lost 2.36% while the UK FTSE 100 fell 1.34%. Wall Street futures are deep in negative territory with SP500 futures down 1.25%.
West Texas Intermediate (WTI) oil plunged 4.96%, falling from $109.65/b to 103.23 before rebounding to $104.75 in NY. Gold prices suffered on the back of a firmer US dollar and ahead of Fed Chair Powell’s testimony.
Mr Powell begins his two-day Congressional testimony this morning. Inflation will be front, and center and the Fed chair will reiterate his plans to return CPI to its 2.0% target. High inflation is a hot topic in the Biden Administration which suggests markets could be vulnerable to headline risk from today’s Q&A.
The Canadian dollar may see some volatility after today’s inflation report. Canada CPI is expected to have risen to 7.4% y/y from 6.8% in April. However, the May increase is expected to be just 0.3% compared to 0.7% m/m previously which some analysts may see as evidence that inflation has peaked for this cycle.
EURUSD dropped from 1.0535 at yesterday’s close to 1.0470 in early European trading due to negative risk sentiment from renewed Covid issues in China. Prices climbed steadily since and are trading at 1.0524 in NY. EURUSD is stuck in a 1.0400-1.0600 trading band with prices weighed down by broad US dollar demand and a weak Eurozone growth outlook, exacerbated by the Russian/Ukraine war. Hopes of ECB rate hikes to combat inflation are providing some support.
GBPUSD traded in a 1.2162-1.2279 range and is close to the top in NY. The price action mirrored EURUSD moves in Asia, but UK inflation data fueled the rally. May CPI rose 9.1% y/y, as expected but higher than April’s 9.0% increase. Producer Price Index measures were all higher than expected.
USDJPY consolidated Tuesday’s gains in a 135.82-136.70 range. The currency is being battered by widening US and Japanese interest rate differentials. The BoJ and Finance Department insist that ultra-easy monetary policy is what Japan needs.
AUDUSD dropped from 0.6971 to 0.6883 while NZDUSD slid to 0.6246 from 0.6312 due to risk aversion from renewed Covid concerns in China and lower commodity prices.
The US economic calendar is light, leaving Fed Chair Powell’s testimony to provide market direction.
