The Canadian dollar was directionless in another uneventful overnight session. Traders are content to await further guidance from the Personal Consumption Expenditures (PCE) inflation report, which is said to be the Fed’s preferred measure of inflation. Higher than expected results will reignite the debate as to the timing of the next U.S. rate increase, and undermine the Canadian dollar.
The euphoria following news of the U.S. Bi-partisan infrastructure spending plan powered Wall Street to a record close yesterday, and Asia indexes followed suit. European traders are far more cautious, and bourses are treading water. S&P 500 futures are a touch firmer. Oil prices retreated from their best levels, while gold nudged modestly higher. 10-year U.S. Treasury yields are steady at 1.492%.
A flock of Federal Reserve officials offered contrary opinions about monetary policy, tapering and interest rates this week which created a bit of volatility in markets. Former New York Fed President William Dudley suggests that most of them should be ignored. He said the only opinions that count are from Fed Chair Powell, Vice Chair Clarida, and New York Fed President Williams, as they set the agenda.
EUR/USD traded in a $1.1928-$1.1950 range. Traders are hoping that today’s U.S. PCE data will provide some direction. Even so, the contrasting European Central Bank and Fed monetary policies suggest EUR/USD gains will continue to be capped in the $1.1970-$1.2000 area.
GBP/USD dropped from $1.3980 pre-Bank of England meeting to $1.3888 after the BoE failed to deliver an anticipated hawkish message. Prices drifted in a $1.3898-$1.3944 range overnight. Policymakers have torn a page from Fed Chair Powell’s playbook and say they are focused on employment, while believing inflation gains to be transitory.
USD/JPY dropped from 110.97 yesterday to 110.67 in Europe, then popped to 110.80 in early New York trading. The currency pair is underpinned by U.S. Treasury yields, and awaits PCE data for further direction.
AUD/USD and NZD/USD managed to squeeze out small gains compared to Thursday’s opening level, on the back of improved risk sentiment following the U.S. infrastructure news.
The Canadian dollar is rangebound. USD/CAD traded in a narrow $1.2301-$1.2328 range overnight, and direction is dictated by broad U.S. dollar sentiment, and oil price movements. The longer-term technicals are bearish below $1.2490, while support in the $1.2000-50 area puts a floor on the downside.
U.S. PCE and Michigan Consumer Sentiment data are ahead.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
