- Canada inflation expected to cool to 7.6% from 8.1%
- Weak Eurozone and German ZEW data weighs on EURUSD
- US dollar rally continues, but this time CAD outperforms
USDCAD Snapshot open 1.2904-08, overnight range 1.2891-1.2927, close 1.2902, WTI oil $88.98, Gold $1775.77
The Canadian dollar is feeling feisty. It is starting today’s New York session as the best performing G-10 currency against the US dollar compared to yesterday’s open. In addition, the Canadian dollar is the best performing G-10 currency this year. It has only lost 1.42% since compared to the December 31 closing level. The Japanese yen wins the gold medal as it lost 16.54%.
The Canadian dollar may outperform again today after Canada’s July inflation report is released. The consensus forecast is for a decline of 0.5% in headline CPI to 7.6%, mainly because oil prices declined sharply in the month. More importantly, Core-CPI, which excludes food and energy, is expected to jump to 6.7% y/y from 6.2% y/y.
The 0.5% jump in core-CPI will ensure the Bank of Canada sticks to its aggressive inflation fighting strategy, leaving a 75 bp rate hike on the table at its September 7 meeting.
A higher then expected inflation reading should boost the Canadian dollar.
EURUSD is trading at the bottom of its 1.0124-1.0169 overnight range. The German ZEW survey result was weak. The statement noted, “The ZEW Economic Expectations decrease again slightly in August after a sharp drop in the previous month. The financial market experts therefore expect a further decline in the already weak economic growth in Germany. The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector.” A break below 1.0100 targets parity.
GBPUSD traded in a 1.2009-1.2059 range, reaching the bottom on the release of the UK employment report. The unemployment rate stayed at 3.8% and average hourly earnings including bonus rose 5.1%
Unemployment remains low, but job vacancies fell. Even worse, Liverpool dockworkers, one of the UK’s largest container ports, voted to strike.
USDJPY climbed to 133.29 from 132.96, supported by broad US dollar strength and modestly firmer -year Treasury yields.
AUDUSD traded in a 0.06997-0.7039 range. The minutes from the RBA’s August 2 meeting were a non-event.
NZDUSD traded with a negative bias in a 0.6325-0.6369 despite expectations that the RBNZ monetary will raise rates 0.50% at tomorrow’s monetary policy meeting.
Today’s US data includes Building Permits, Capacity Utilization, and Industrial Production.
