- FX focus on US CPI data
- German ZEW Survey, UK Employment data, ignored by FX
- US dollar drifts lower on improved risk sentiment
USDCAD Snapshot open 1.2969-1.2973, overnight range 1.2971-1.2993, close 1.2984, WTI oil $88.76, Gold $1726.99
The Canadian dollar is probing resistance after a relatively cautious overnight session. Prices are underpinned by a wave of US dollar selling in anticipation of a weaker-than-expected US inflation report today.
Headline US CPI is expected to have fallen to 8.1% y/y in August, from 8.5% y/y in July, thanks to sharply lower oil prices. However, improved risk sentiment from that drop will be more than offset if Core inflation rises from 5.9% y/y to 6.1%, as expected.
FX traders are betting that the CPI results will be weaker than forecast, boosting equities and extending US dollar losses. A higher-than-expected result may have a limited impact if traders believe it wouldn't change US interest rates' 4.0% terminal rate view.
Risk sentiment was positive in Asia, with the major stock indexes closing with a gain. The trend continued in Europe, led by a 0.82% rise in the German Dax index. US equity futures point to a higher open on Wall Street (providing CPI is weak), while oil and gold prices are higher.
Bond traders do not appear to be concerned about today's inflation data as the US 10-year Treasury yield has slipped from an overnight peak of 3.348% to 3.308% in NY.
EURUSD traded sideways in Asia, then rose from 1.0120 to 1.0169 by the NY open. The gains were due to broad US dollar weakness stemming from hopes US inflation cools, while traders ignored another weak German and Eurozone ZEW survey. Economic Sentiment fell 6.6 points to -61.9, and Current conditions fell from -47.6 to -60.5 due to the energy crisis and slowing Chinese growth.
GBPUSD rose from 1.1681 to 1.1731 after domestic data took a backseat to the outlook for US inflation. Traders ignore the economic risks of two dock strikes (Felixstowe and Liverpool). UK headline employment data looked pretty good. Unemployment fell to 3.8%, the lowest since 1974, but it's an illusion. ING economists said the decline was not due to more people working but "a dramatic rise in those classified as inactive.
USDJPY dropped to 142.06 from 142.83 in tandem, with the US 10-year Treasury yield sliding from 33.348% to 3.316%.
AUDUSD rallied from 0.6865 to 0.6910 due to firmer commodity prices and broad US dollar weakness.
NZDUSD mirrored the AUDUSD move, rising from 0.6126 to 0.6153.
