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USD / CAD - Canadian Dollar in Rally Mode

- Wall Street futures cheer 8.5% inflation

- Fed policymakers warn more rate hikes in the pipeline

- US dollar sinks on improved risk sentiment

USDCAD Snapshot open 1.2761-65, overnight range 1.2759-1.2790, close 1.2776, WTI oil $92.96, Gold $1790.26

The Canadian dollar soared on the coattails of broad US dollar selling pressure yesterday and consolidated those gains overnight.

US Inflation rose 8.5% y/y in July, and to equity traders, that was good news. It is only good news because it was lower than expected (8.7% y/y) and 0.6% lower than June's 9.1% y/y result.

Wall Street determined that the July drop is evidence that inflation peaked, allowing the Fed to cut interest rates as early as January 2023.
A couple of Fed policymakers shouted, "hold on there."

Mary Daly, San Francisco Fed President, said it's "too early" to declare victory over inflation. She warned that a 75 basis point rate hike was a strong possibility in September. "There's good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal." She expects rates to rise to 3.5% by year-end.

Her colleague and another non-vote, Minneapolis Fed President Neel Kashkari, claimed he didn't see anything that changed the need to hike rates to 3.9% at the end of 2022 and to 4.4% by the end of 2023.

He was not concerned that higher interest rates could drive the economy into a recession, saying, "we have to get inflation back to 2.0%."
The US dollar plunged after the CPI release, which boosted the Canadian dollar. The gains may be short lived. The Canadian economy is weaker than the US and more vulnerable to a recession.

Canada lost jobs for two consecutive months while in contrast, the US added nearly one million new jobs.

The Canadian dollar is not getting much support from West Texas Intermediate oil prices mainly because the current USDCAD level of 1.2770 fully reflects oil at $92.00/b. WTI would need to rise above $110.00/b to give the Loonie a boost.

EURUSD soared following the inflation data and extended those gains in a 1.0277-1.0342 range overnight. The rally may be overdone as EURUSD technicals remain bearish. In addition, divergent ECB and Fed rate policies, the looming Euro area recession
and the Russia/Ukraine war keeps the EURUSD focused on the downside.

GBPUSD tracked EURUSD moves and consolidated gains in a 1.2184-1.2244 range overnight.

USDJPY consolidated yesterday's losses in a 132.44-1.3331range with prices weighed down by broad US dollar weakness and steady 10-year Treasury yields in the 2.78% area.

AUDUSD rallied and is at the top of its 0.7065-0.7114 overnight range with the gains underpinned by lower Consumer Inflation expectations data.

Today's data includes weekly jobless claims (forecast 263,000 vs 260,000 last week) and July PPI.