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USD / CAD - Canadian Dollar Adrift

- Canadian banks are closed Monday.

- Traders awaiting Tuesday’s US CPI data.

- US dollar opens with a bid after surging yesterday.

USDCAD: open 1.3799-04, overnight range 1.3787-1.3827, close 1.3803, WTI $77.33, Gold, $1939.61

The Canadian dollar drifted overnight but made its session low in early New York trading. It is setting up to be a very dull trading day due to key US economic data being released tomorrow and because Canadian banks are closed for Remembrance Day, even though the actual date was Saturday.

The Canadian dollar remains under pressure due to the relatively hawkish outlook provided by Fed Chair Jerome Powell last Thursday. He warned that if the incoming data suggests inflation isn’t declining as expected, he wouldn't hesitate to raise interest rates again. He isn’t very eager to cut rates in the near term, which is contrary to the Canadian outlook. Traders are pricing in the first Bank of Canada rate cut to happen in April 2024.

Meanwhile, oil prices are also adding another negative to Canadian dollar prices. West Texas Intermediate (WTI) prices have fallen steadily after peaking at $93.30/b on October 9. WTI oil prices have dropped over 20% since October 20, and the downtrend remains intact.

Analysts fear that short-term supply will far exceed demand, partly because Chinese refiners requested lower volumes in the face of expectations that US gasoline demand has dropped to a multi-decade low.

Nevertheless, sentiment can shift quickly, especially if Arab nations add military support to the monetary support they give Hamas, to facilitate attacks on Israel.

Traders are also looking ahead to the mid-week meeting between US President Joe Biden and Chinese self-proclaimed Emperor Xi Jinping in hopes that geopolitical tensions will be dialed back.

EURUSD traded quietly in a 1.0681-1.0701 range. Support in the 1.0660 area may get tested if comments from ECB officials this week fail to change the market’s belief of three rate cuts in 2024.

GBPUSD is trading near the top of its 1.2212-1.2256 range. UK house prices fell 1.7% m/m in November and are down 1.3% y/y, but GBPUSD traders are focusing on Tuesday’s employment and average earnings data. Even so, it will be the US inflation report that drives GBPUSD direction.

USDJPY drifted higher in a 151.44-151.90 range with weaker-than-expected Producer Price Index data (actual -0.4% vs. forecast 0) and steady US Treasury yields underpinning prices.

AUDUSD inched higher in a 0.6352-0.6385 range, garnering a bit of support from comments by RBA Assistant Governor Marion Koler. She said that although inflation was still expected to decline, it will be a long, drawn-out process, which implies another rate hike is not out of the question.

The US and Canadian economic calendars are empty.