- Markets quiet as traders reassess outlook
- Scotiabank economist claims latest fiscal stimulus program inflationary
- US dollar drifts higher in quiet overnight session
USDCAD Snapshot open 1.3164-68, overnight range 1.3156-1.3183, close 1.3167, WTI oil $87.89, Gold $1689.37
The Canadian dollar is licking its wounds and trading defensively in a dull FX session.
USDCAD soared following the hotter-than-expected US inflation report on Tuesday, and is consolidating those gains just below key resistance in the 1.3210 zone.
Tuesday's US CPI data baked in forecasts for a 75-basis point rate hike at next Wednesday's FOMC meeting.
It also stomped all over the narrative that inflation has peaked, and US rate hikes would top out at 4.0%.
The US inflation story drives global market activity, although the action was muted overnight. Asia equity indexes closed with minor gains, except for those in China. European bourses are trading in positive territory while DJIA and S&P 500 futures are virtually unchanged.
The risk of higher US interest rates knocked gold prices for a loop. XAUUSD plunged from $1734.50 on Tuesday to $1686.80.00 today.
Prime Minister Trudeau announced another $4.5 billion spending plan, which includes more money for low-income renters, $650.00 for dental care for kids under 12, and a six-month doubling of the GST rebate for those with low incomes.
Trudeau's claim that the spending is not inflationary was disputed by Scotiabank Capital Markets Chief Economist Derek Holt.
He wrote in a note to clients: "it seems sensible to assume that this will add to pressures on measures of core inflation relative to what would have otherwise occurred and hence aggravate the Bank of Canada's stance on monetary policy. Any belief that it will ease inflationary pressures must have studied different economics textbooks.
The major G-10 currency pairs traded in narrow ranges except for the Japanese yen. USDJPY traded with a bullish bias rising from 142.81 to 143.80 before easing to 143.52 in NY. USDJPY continues to be underpinned by higher US Treasury yields, but gains are slowed due to FX intervention fears.
EURUSD traded in a 0.9957-1.0000 band supported by expectations the ECB will raise rates by 75 bps' at the October meeting.
Today's US data which includes weekly jobless claims, Philadelphia Fed Manufacturing Survey, and August Retail Sales, may ignite some trading action. Still, with the Fed meeting looming on September 21, any reaction may be short-lived.
