- Bank of Japan surprises by leaving policy unchanged
- US Retail Sales and Producer Prices due
- US dollar drops across the board, except against JPY
USDCAD snapshot: open 1.3355-59, overnight range 1.3353-1.3408, close 1.3390, WTI $81.66, Gold $1914.43
The Canadian dollar grinded out gains in an overnight market dominated by wild price swings in USDJPY, with European and UK data playing a role.
Yesterday, Statistics Canada reported inflation data that was lower than in November. Headline CPI rose 6.3% y/y in December, as expected but below Novembers 6.8% y/y result. Core-CPI was the surprise. It only rose 5.4% compared to forecasts for a 6.1% y/y increase. The majority of the declines was due to lower oil prices.
The news was good, but not enough to dissuade the Bank of Canada from raising interest rates by 25 bps next week.
The Canadian dollar reaction to the data was brief and the focus shifted to Europe where “unnamed Officials” claimed the ECB would only hike rates 25 bps in March, rather than the 50 bps that President Christine Lagarde hinted at in December.
Today’s domestic data will unlikely have any impact on the currency pair. Canadian Industrial Production and Raw Material Price indexes are due.
WTI oil prices rose from $80.58/b to $81.86 overnight due to broad US dollar weakness and a bullish oil outlook from the Opec Secretary General Haitham Al Ghais predicted accelerating Asia demand for crude and falling Russian supplies due to sanctions will underpin prices.
The Bank of Japan played the biggest role in market volatility overnight. They surprised many traders when they are left monetary policy unchanged. USDJPY had fallen to 127.20 last Friday on anticipation that the BoJ would tighten monetary policy. That didn’t happen and USDJPY soared reaching 131.57 in Asia, as traders unwound speculative short USDJPY positions. Prices started to slide in Europe due to falling US 10-year Treasury yields and USDJPY is trading at 128.94 in NY.
EURUSD traded in a 1.0767-1.0871 range after ECB Vice President Francois Villeroy reiterated support for a 50-bb rate hike. He said “Let me remind you of the words of President Lagarde at her last press conference in December: We should expect to raise rates at a pace of 50 basis points for a period of time. Well, these words are still valid today.”
GBPUSD traded in a 1.2256-1.2387 range, supported by softer inflation data, which supports a 50 bp rate by the bank of England.
US Retail Sales are expected to have fallen 0.8% m/m in December and the PPI-ex food and energy is forecast at 5.9%. Capacity Utilization, Business Inventories, and Industrial Production are also on tap.
