- US Core PCE Price index expected at 2.6% y/y (previous 2.8%)
- Tame BoJ sinks yen.
- US dollar trades defensively except against JPY and MXN.
USDCAD: open 1.3655, overnight range 1.3632-1.3672, close 1.3670, WTI $83.59, Gold, $2343.34
The Canadian dollar has bounced up and down in a narrow USDCAD inside the band 1.3632-1.3700 range since Friday and is likely to remain inside that band until tomorrow’s Canadian GDP report.
The Canadian economy is expected to have grown by 0.4% m/min February; a touch slower than the 0.6% seen in January. The January gain was downplayed because the results were impacted by the end of a Quebec public workers strike. An upside surprise would suggest that the economy is rebounding robustly which would reduce the need for the BoC to cut interest rates.
The FOMC meeting is Wednesday. Fed Chair Powell said that policymakers needed to see a sustained downtrend in inflation before gaining the confidence to cut interest rates. Recent data, including Friday’s PCE-Price index will not give the FOMC any confidence. However, if anything, the Fed is patient and Wednesday’s monetary policy statement will reflect that patience.
EURUSD traded in a 1.0692-1.0734 range, peaking in Asia and finding a bottom just before NY opened, then climbed to 1.0717. Traders were not thrilled to learn that the European Commission’s economic sentiment indicator fell to 95.6 from 96.2 in March. Industrial confidence fell and inventories rose.
GBPUSD traded in a 1.2479-1.2549 range, rising in Asia then retreating in Europe. Traders have modestly reduced the size of UK rate cuts in the wake of the PCE data which suggested US rates would remain elevated for longer than expected. The GBPUSD technicals are bearish below 1.2600, looking for a move below 1.2470 to extend losses to 1.2410.
Japanese markets were closed for Golden Week and will be closed until next Monday, but you would not know it from looking at USDJPY price action. USDJPY closed at 158.34 on Friday and continued to motor higher in early Asia. Friday’s US PCE data almost ensured that the Fed would leave rates on hold until year end while the US 10-year yield at closing at 4.663% drove USDJPY to 160.20. Suddenly, it collapsed and dropped to 154.52. BoJ officials would admit nothing. Prices have since rallied to 155.86 which is not much and the injection of two-way risk may temper gains for now.
AUDUSD climbed from 0.6527 to 0.6587 due to broad US dollar weakness following the plunge in USDJPY, and improved risk sentiment following Friday’s US equity rally. Australia Retail Sales data is due tomorrow, but FX direction will be determined by China PMI data, also released Tuesday.
