The Canadian dollar stayed inside its four-day USD/CAD trading range of $1.2530-$1.2605, in an uneventful overnight session. The domestic focus is on June inflation data.
Canada Consumer Price Index is expected to rise 3.2% y/y, a tad lower than the 3.4% increase in May. Core CPI, which excludes food and energy is forecast at 2.4% compared to 2.8% in May.
The question is "will the decline (if it occurs) be due to lower prices, or will it be due to the Bank of Canada massaging the data to achieve a desired result?" Today’s CPI report is the first to use new CPI weightings which the BoC says will better reflect pandemic spending patterns. Weightings for furniture, real estate, and alcohol have increased while travel, and clothing have decreased.
Cynics suggest the change in the key component weightings is a deliberate attempt to skew inflation down, allowing interest rates to remain low, and support the governments spending efforts.
The U.S. Federal Reserve is also concerned about rising inflation. Well, actually they aren’t. Fed Chair Jerome Powell and colleagues insist that recent high inflation readings are "transitory," and therefore no reason to change monetary policy.
Today’s Federal Open Market Committee meeting should be a non-event as it falls just two weeks after Powell’s Congressional testimony. He told Congress that U.S. monetary policy would remain unchanged until there was "substantial further progress" in achieving the Fed's dual mandate, which had not occurred.
The FOMC statement and Powell’s press conference should be a non-event for markets.
European equity traders ignored Asian price action and bought stocks, in part due to yesterday’s robust earnings reports from Apple, Alphabet, and Microsoft and due to expectations for a benign Fed meeting.
Wall Street futures point to a flat to slightly positive open. WTI oil prices are higher while gold is close to unchanged. U.S. 10-year Treasury yields are basically unchanged at 1.253%.
EUR/USD is in the middle of its $1.1803-$1.1830 overnight range. The single currency is underpinned by hopes today’s FOMC statement and press conference are deemed dovish, which will serve to offset bearish sentiment from the latest European Central Bank monetary policy outlook. EURUSD technicals are bearish below $1.1850.
The Canadian dollar closed at the bottom of its overnight range then rallied in a move fueled by robust earnings reports from Alphabet, Apple and Microsoft, and firmer oil prices. WTI oil rose to $72.57/barrel from $71.68/b following API reporting a 4.7 million barrel drawdown in U.S. crude inventories. Canadian dollar direction will continue to be dictated by broad US dollar sentiment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
