The Canadian dollar traded quietly and in a narrow range overnight. FX markets are in "wait-and-see" mode. They are waiting for today’s U.S. Federal Open Market Committee (FOMC) policy statement, updated economic projections and Fed Chair Jerome Powell’s press conference. They hope to see a clear monetary policy outlook.
The FOMC has been anything but transparent in its previous meetings this year, and is not likely to break the streak today. The committee is divided. Some members want to cut rates aggressively, others like them where they are, and still others think rates should be higher. Powell might have an easier job herding cats.
Analysts and traders are undecided about today’s Fed rate outcome. A little more than 54% expect the range for fed funds to be trimmed to 1.75-2.00% from 2.00-2.25%, leaving the balance expecting no change. That suggests the FX price action, including Canadian dollars, will be quite volatile when the statement is released and during the press conference.
FX markets were a tad skittish overnight, thanks to regional economic reports, oil price action and pre-FOMC meeting positioning. AUD/USD gave up early gains following disappointing Leading Index data, which has been in negative territory for eight of the past nine months. NZD/USD tracked AUD/USD lower with both currency pairs weighed done by broad U.S. dollar demand.
The Japanese yen drifted lower in a tight range. Traders ignored softer U.S. Treasury yields and Japanese trade data, in part due to the unwinding of safe-haven trades as oil price pressures eased.
GBP/USD peaked during the Asia session and sank in Europe under the weight of weak economic data and a lack of Brexit news. The Supreme Court hearing on whether proroguing parliament was legal is ongoing. If it rules against the government, it could lead to a new Brexit referendum. However, traders were more concerned about weaker than expected U.K. inflation data, which triggered selling. GBP/USD was also pressure by broad U.S. dollar strength and profit-taking following yesterday’s steep rally.
EUR/USD traded with a negative bias but managed to hang on to most of yesterday’s gains. EUR/USD traded in a $1.1039-$1.1074 range, well above yesterdays low of $1.0092. Eurozone August Consumer Price Index rose 0.1% m/m, a tad weaker than the 0.2% forecast which weighed on prices.
Oil prices consolidate yesterday’s losses, trading in a $58.68-$59.40 U.S./barrel range. Prices eased from the oil-shock peak of $63.32 after Saudi Arabia said full oil production would resume shortly, and that close to 50% of pre-drone raid volumes were back on-line. However, the gap from last Friday’s $54.82/b closing level to Monday’s $63.05 open is unfilled, suggesting prices may have more downside. However, tension remains high as the U.S. and Saudi Arabia accuse Iran of responsibility for the attacks.
The Canadian dollar is vulnerable to weaker-than-expected domestic inflation data this morning.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
