- US CPI data ahead
- China pushes back against rising yuan
- US dollar opens on firm footing
USDCAD Snapshot Open 1.2716-20, Overnight Range 1.2695-1.2721, Previous close 1.2713, WTI open $71.32, Gold open $1771.24
The Canadian dollar sank following the Bank of Canada meeting on Wednesday, extended those losses yesterday and the consolidated overnight.
Bank of Canada Deputy Governor Toni Gravelle justified the central bank’s inaction by blaming rising inflation on supply chain disruptions. He also said that prices pressures may last longer than previously expected. His speech did not have any impact on the currency as it did not contain any new insight or information.
Finance Minister Chrystia Freeland is expected to announce a five-year renewal of the BoC’s 2.0% inflation target, but with an employment wrinkle. The BoC must now consider employment levels in its monetary policy decisions. It is not a dual mandate but employment already factors into policy decisions.
A cynic would suggest that since the BoC has been unable to achieve its inflation targets, adding another metric just makes it more difficult.
The Peoples Bank of China (PBoC) pushed back against the rising yuan (CNY) buy raising the FX Reserve Requirement Ratio for banks by 200 basis points, taking it to 9.0% from 7.0%. Analysts suggest that a rising yuan was due in part to overseas funds buying yuan denominated assts and the RRR increase was a way to slow the flows.
Traders are focused on today’s US inflation report, and speculating that the results will exceed the consensus forecast of 6.8% y/y. If so, analysts will expect a hawkish Fed meeting next Wednesday and an indication for higher US rates sooner.
Traders continue to disregard risks from Russia and Ukraine, leading to hostilities and more aggressive US action if the Iran nuclear talks fail.
EURUSD is at the bottom of its 1.1266-1.1302 range. The single currency is suffering from recent chatter that the ECB is discussing expanding the Asset Purchase program, which suggests a more prolonged period of low interest rates, even as the Fed hikes. German HICP inflation was confirmed at 6.0%.
GBPUSD traded in a 1.3189-1.3232 band, garnering a little support from an increase in inflation expectations to 3.2% from 2.7%, which may encourage a more aggressive response at next weeks Bank of England (BoE) meeting. However, weaker than expected November GDP data supports BoE inaction.
USDJPY rallied alongside the rise in the US 10-year Treasury yield, although negative risk sentiment slowed the gains.
AUDUSD outperformed NZDDUSD on M&A news and steady to firm iron ore prices and easing Omicron views.
Michigan Consumer Sentiment Index is due at 10: am.
