The Canadian dollar tested support and resistance levels in the past 24 hours and failed to break either. None of the price action had anything to do with domestic influences.
It was all because of flip-flopping U.S. rate hike speculation, combined with a drift into negative risk sentiment.
The U.S. dollar plunged yesterday after US inflation numbers were weaker than expected, then quickly reversed the move following sober second-thought. August consumer price index (CPI) rose just 0.3% m/m and Core CPI rose just 0.1%, compared to forecasted gains of 0.4% and 0.3%, respectively.
USD/CAD was not unscathed. Prices dropped to $1.2601 before spiking to $1.2794 by the close and then rising to 1.2707 in Asia.
Canada’s inflation numbers are released today. The month-over-month results are expected to be tame, but year-over-year inflation is running hot. The Canadian dollar may see some upside on higher than expected results, but gains may be limited. Last week, Bank of Canada Governor Tiff Macklem said Canadian interest rates are not likely to rise until the second half of 2024. Today's inflation print won’t change that view.
Canadian dollar direction is determined by broad U.S. dollar sentiment, and at the moment, that sentiment is bullish. The dialogue around U.S. equity prices is one of caution. The September-October period has a history of nasty moves and the lofty and lengthy gains in the major indexes means they are vulnerable to steep losses.
Traders are looking at China with concern. The heavy-handed actions of Chinese regulators have eroded confidence in Chinese stock markets and global investment. Recent COVID -19 outbreaks in China and weaker than expected economic data raised concerns that global growth may be slowing. China’s aggressive rhetoric towards and about Taiwan is another source of unease. Russia’s annexation of the Crimea proves that Western governments are powerless to prevent super-power aggression.
In the U.K., the Office of National Statistics reported inflation jumped 1.2%, to 3.2% y/y from 2.0%y/y between July and August, the largest increase ever recorded. The office also said it wouldn’t last. GBP/USD gained on the news, but those gains have since faded.
USD/JPY plunged from 110.13 yesterday to 109.20 in New York today due to sliding U.S. Treasury yields, and an increase in negative risk sentiment.
Today’s U.S. data includes Industrial Production, Capacity Utilization, and the NAHB housing Price Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
