- Slow start to week ahead of FOMC meeting Wednesday
- UK Closed for Queen Elizabeth ll funeral
- US dollar mixed but has bullish bias
USDCAD snapshot: open 1.3307-11, overnight range 1.3252-1.3314, close 1.3265, WTI $83.62, Gold $1663.77
The Canadian continues to trade with a negative bias as global markets react to higher US interest rate fears.
This week started slowly due to a National holiday and a massive typhoon in Japan. UK markets are closed due to Queen Elizabeth's funeral, which sucked liquidity out of European markets.
Traders will be reluctant to get involved ahead of Wednesday’s FOMC meeting and the release of the updated Summary of Projections. A 75-basis point rate hike is priced, although some analysts believe a 100 bp bump is in the cards.
Last week’s hotter-than-expected US inflation report sparked forecasts for a higher terminal (peak) fed funds rate and raised fears that rates will remain elevated all of 2023. Those fears sent the US dollar soaring and sank Wall Street equities.
Canadian inflation will be at the forefront on Tuesday. August CPI is expected to rise to 8.0% y/y from 7.6% in July, while Core CPI is predicted to tick down to 6.0% y/y from 6.1%.
The Bank of Canada has hiked rates more than any other G-10 central bank this year, and the Canadian dollar hasn’t derived much benefit.
Part of the reason is that the Federal government is increasing taxes through higher carbon fees and fertilizer taxes and by allowing the government dairy cartel to raise prices for milk, eggs, and butter. Those actions contribute to the inflation problem. In addition, the government announced another round of stimulus spending in the form of a $4.5 billion program to provide relief from inflation.
The Canadian dollar extended losses overnight, partly due to falling oil prices. West Texas Intermediate (WTI dropped from $86.20/barrel to $82.60/b in NY. Traders are worried that the rising risk of a global economic slowdown will depress demand.
EURUSD traded with a bearish bias in a 0.9967-1.0029 range with prices weighed down by concerns about a hawkish FOMC statement hinting at sharply higher interest rates.
GBPUSD traded in a 1.1357-1.1441 range due to broad US dollar strength from the FOMC outlook.
Trading was quieter than usual due to the funeral for Queen Elizabeth ll.
Japan was closed for a National Holiday. Nevertheless, USDJPY rose to 143.53 from 141.53, undermined by divergent Bank of Japan and Fed monetary policy. The Fed is expected to hike rates 75 bps on Wednesday, while BoJ officials insist the Japanese economy needs stimulus.
AUDUSD and NZDUSD fell due to broad US dollar demand.
The US economic calendar is empty.
