The Canadian dollar is idling in an uninspiring FX summer market. The U.S. and Canadian economic calendars are devoid of actionable, top-tier economic data until Wednesday’s U.S. inflation report. U.S. Consumer Price Index is expected to be 5.3% y/y in July, a tick softer than June’s torrid 5.4% y/y pace.
Richmond Fed President Thomas Barkin said interest rates would rise "when inflation hits 2%, which I think you can argue it already has, and it looks like it is going to sustain there." Atlanta Federal Reserve President Raphael Bostic appears to agree. He believes inflation reached its core target of 2.0% in May.
Those comments served to boost US 10-year Treasury yields, which climbed to 1.329% today, from 1.270% yesterday.
Traders are concerned about a hawkish Fed raising interest rates sooner than expected. However, they are just as worried about another global growth slowdown due to the spreading coronavirus delta-variant in Asia.
The Canadian dollar is at the mercy of the shifting risk sentiment, and sliding oil prices adds another layer of uncertainty. West Texas Intermediate (WTI) plunged from $74.15 on July 30 to $65.10 yesterday, a 12.2% drop. In June and July, many bank analysts were forecasting $100.00/barrel for WTI. The spread of the coronavirus in Asia sparked a re-assessment of the view and fueled selling. The magnitude of the move may be exaggerated because of thin summer markets.
WTI has support from geopolitical issues. North Korea is making noises around the annual South Korea and U.S. war games. Germany, Australia, the U.K., and the U.S. are sailing deep into the South China Sea to remind China that those are international waters. Iran and Iran proxies are attacking Israeli shipping in the Arabian Sea. Any of these events could spark a risk aversion event.
EUR/USD is on the defensive after the German ZEW Economic Sentiment plunged 22.9 points to 40.4 from 63.3 in July. ZEW officials suggest the results point to German economic growth risks, which is due to the coronavirus.
GBP/USD caught a bid in Europe and climbed to $1.3873 from $1.3835, mostly due to EUR/GBP selling when EUR/USD broke below $1.1730 support.
USD/JPY rallied from 110.28 to 110.54, supported by higher U.S. Treasury yields and broad U.S. dollar strength.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
