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USD / CAD - Canadian dollar takes a beating

- Risk sentiment sours on US recession talk

- UK Chancellor delivers “austerity budget”

- US dollar rallies across the board

USDCAD snapshot open 1.3367-71, overnight range 1.3307-1.3376, close 1.3328, WTI $84.57, Gold $1762.63

The Canadian dollar didn’t get any benefit from yesterday’s inflation report and the focus shifted to south of the border.

Canada’s inflation rate was 6.9% in October, as expected. The Bank of Canada’s three inflation metrics Cpi-trim, median and common averaged 5.4% which is unchanged from September. The results will not dissuade the BoC from hiking rates further. The only question is whether they go 25 or 50 bps at the December 7 monetary policy meeting.

USDCAD churned when the CPI data was released but the focus quickly turned to the higher-than-expected US Retail Sales report which rose 1.3% m/m compared to the forecast for a 1.0% increase. The results suggested the US economy was strong enough to withstand further rate increases.

Bond traders were spooked. The thought of higher US interest rates exacerbated their concerns about recession risks. The US 10-year Treasury yield slid from 3.825% to 3.683% before climbing to 3.73% in NY, which crushed the S&P 500 index and boosted the USDCAD in the process.

USDCAD rallied from 1.3227 yesterday to1.3387 in NY today, underpinned by a bullish technical picture which suggests further gains to 1.3450 then 1.3550.

EURUSD traded in a 1.0328-1.0406 range with the bottom seen in early NY trading. EuroStat reported “The euro area annual inflation rate was 10.6% in October 2022, up from 9.9% in September. A year earlier, the rate was 4.1%. European Union annual inflation was 11.5% in October 2022, up from 10.9% in September. A year earlier, the rate was 4.4%.”

GBPUSD is trading at the bottom of its 1.1803-1.1958 range in the wake of Chancellor Jeremy Hunt’s austerity budget and broad US dollar strength.

USDJPY rallied from 138.88 to 140.23 following the small bounce in US Treasury yields overnight while traders ignored comments by BoJ Governor Haruhiko Kuroda.

AUDUSD dropped to 0.6647 from 0.6750 despite a stronger than expected employment report (employment rose 32,200 vs forecast 15,000). Analysts are divided about a 25 or 50 bps hike at the next RBA meeting.

Today’s US economic reports include weekly jobless claims, housing starts and Philadelphia Fed Manufacturing Survey.