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USD / CAD - Canadian Dollar becalmed before BoC

- Markets subdued ahead of Wednesday’s US inflation data.

- Bank of Canada could surprise.

- US dollar opens on the defensive after recent gains.

USDCAD: open 1.3568, overnight range 1.3560-1.3585, close 1.3574, WTI $86.66, Gold, $2363.35

The Canadian dollar is trading in circles inside a narrow USDCAD range of 1.3560-1.3585. There are no top-tier US or Canadian economic reports due today which suggests traders will sit on the sidelines until tomorrows US inflation data and the Bank of Canada monetary policy meeting.

US inflation is declining which is what the Fed wants to see. Unfortunately the decline appears to not only have stalled, but CPI may have ticked higher in March, rising to 3.4% y/y from 3.2% previously. The market is positioned for such an outcome which suggests a downside surprise would sink the US dollar and give a turbo-boost to equities.

The Bank of Canada monetary policy meeting is tomorrow, and it could also deliver a surprise to markets. Policymakers could justify a 25 bp rate cut following a series of weaker than expected economic reports. Domestic inflation is inside the BoC targeted range of 1-3%.

Canada GDP may have been higher than expected in January, but it may have been just a much needed correction after 6 consecutive soft readings. Canada’s unemployment rate rose to 6.1%, wage growth has slowed, and business bankruptcies are higher.

Despite all that, Governor Tiff Macklem will be content to stick to the status quo. It is the outlook for US interest rates that is driving global markets.

EURUSD stagnated in a 1.0848-1.0870 range and is currently near the top of that band in New York. Traders are on the sidelines ahead of Thursday's ECB meeting, which is expected to pre-announce a June rate cut. EURUSD is vulnerable to downside movement if US inflation rises more than expected. However, a surprise downside surprise in US CPI could trigger a broad-based US dollar sell-off.

GBPUSD is slightly bid in a 1.2649-1.2691 range, with prices finding some support from higher-than-expected Retail Sales, which rose 3.2% year-over-year in March compared to the forecast of a 1.8% increase. Further gains will likely be limited ahead of Wednesday's US CPI data.

USDJPY ticked up to 151.95 from 151.74, underpinned by the US 10-year Treasury yield hovering around 4.40%. Bank of Japan Governor Kazuo Ueda delivered a somewhat dovish outlook to parliament, saying that the bank needs to maintain ultra-loose monetary policy because inflation has not reached its target.

AUDUSD extended yesterday's gains, rising from 0.6597 to 0.6626 due to broad-based US dollar selling pressures as traders adjusted positions ahead of tomorrow's US CPI data. NZDUSD traded higher in a 0.6038-0.6058 range.

There are no US or Canadian economic releases of note today.