- Bank of Canada decision is a coin-flip.
- OECD upgrades global growth forecast slightly.
- US dollar drifting lower.
USDCAD snapshot: open 1.3389-93, overnight range 1.3377-1.3425, close 1.3402, WTI $72.15, Gold $1964.82
The Canadian dollar has renewed its attempt at a topside break-out as positive risk sentiment pushes the US dollar lower.
The story could have been different if traders became fixated on sharply weaker-than-expected Chinese trade data. China’s trade surplus plunged to $65.8 billion in May, down from $90.2 billion surplus in April. Exports fell 7.5% m/m compared to an 8.5% gain previously while imports sank 4.5% m/m.
The data highlighted China’s struggle to recover from Xi Jinping’s Covid-Zero policy and suggested that slow Chinese growth would be a drag on global economic gains.
The Organization for Economic Cooperation and Development (OECD) agrees.
The Paris-based think tank said “The global economy has begun to improve, but the recovery will be weak. It projects a moderation of global GDP growth from 3.3% in 2022 to 2.7% in 2023, followed by a pick-up to 2.9% in 2024. Lower energy prices are easing the strain on household budgets, business and consumer sentiment are recovering, albeit from low levels.
The market is divided about the outcome of today’s Bank of Canada monetary policy meeting. The lack of a statement and press conference convinces has many convinced policymakers will leave rates unchanged. However, they expect a hawkish bias to the statement and hints of a rate hike at the July meeting.
The other camp believes that the BoC will follow the Reserve Bank of Australia’s lead and raise rates by 25 bps as recent data shows the economy is resilient and inflation is sticky and well-above the BoC target.
EURUSD traded in a 1.0669-1.0720 range with the peak occurring in early NY trading. Inflation has declined somewhat in the Euro area, leading some to speculate that the ECB will be less hawkish than expected. However, President Christine Lagarde has not changed her tune and reiterated the need for more tightening. German industrial production rose 0.3% in April (forecast 0.6%).
GBPUSD rallied alongside EURUSD, climbing from 1.2397 to 1.2460. JP Morgan analysts suggest GBPUSD is peaking, and the currency is set for a period of weakness due to the UK economy slowing in the second half of 2023.
USDJPY dropped from 139.65 in Asia to 139.14 in NY as price action continues to be determined by US Treasury yields.
AUDUSD traded in a 0.6663-0.6691 range. Prices were undermined by the Chinese data but supported by hawkish comments from RBA Governor Philip Lowe.
US trade data is ahead.
