- FOMC meeting promises fireworks
- Global markets choppy but rangebound
- CAD slides on oil price woes
USDCAD Snapshot: Open 1.2874-78, Overnight Range 1.2847-1.2883, Previous close 1.2864, WTI open $69.99, Gold open $1768.19
The Canadian dollar is having another bad day. Once again, it is greatly underperforming against the commodity currency bloc (AUD and NZD), and sliding oil prices are to blame, even as the US dollar consolidates recent gains ahead of today’s FOMC meeting.
USDCAD started this week in the 1.2704 area and prices have climbed relentlessly, peaking at 1.2883 in NY today. The bulk of the gains are because traders are flocking to US dollars in anticipation of a hawkish outcome at this afternoons’ Fed meeting.
The FOMC is widely expected to announce they will taper asset purchases faster than previously expected, ending the program in March. That removes a major hurdle to raising interest rates, and analysts are keen to review the dot-plot forecast included in the Summary of Projections, available today. The previous forecast was undecided between leaving rates unchanged or raising them once in 2022. Today, some analysts predict the dots to show two rate increases in 2022.
The rate hike view has fueled US dollar gains against the major G-10 spectrum, suggesting the currency is vulnerable to a steep correction. Fed Chair Powell is not a fan of using the dot-plot forecast as a guide to future policy, often stressing that the dots are just one person’s view and not a Committee outlook.
The surge in Omicron variant cases in American provides Mr Powell with all the ammunition he needs to justify dovish guidance and temper rate hike enthusiasm in markets.
Canada inflation is expected to have cooled somewhat in November, rising 3.6% compared to 3.8% y/y in October. BoC Governor Tiff Macklem may comment on the results in his 2021 year-end review speech at noon.
EURUSD chopped higher, albeit modestly in a 1.1255-1.1276 range. Traders are cautious ahead of the FOMC and Thursday’s ECB meeting while Eurozone data was second-tier. EURUSD technicals are bearish below 1.1320.
GBPUSD climbed from 1.3228 to 1.3282 thanks to higher than expected inflation data. November CPI soared 5.1% y/y compared to 4.2% in October while PPI jumped well above estimates. The results fed speculation of a hawkish BoE meeting on Thursday.
USDJPY traded with a modest bid in a 113.64-113.82 range, trapped between fears of higher US interest rates and Omicron-fueled risk aversion. The US 10-year yield is 1.45%, and analysts suggest the yield is depressed by year-end effects.
AUDUSD and NZDUSD tracked broad US dollar moves and are awaiting the FOMC decision. AUDUSD traders are also awaiting Thursday’s RBA Governor Lowes speech and employment data.
US Retail Sales are expected to rise 0.8% in November, a tad softer than Octobers 1.7% rise.
