- USDJPY tanks on speculation of BoJ tightening tweaks
- US CPI expected to fall to 6.5% y/y from 7.1% y/y in November
- US dollar opens defensively, CAD mostly unchanged
USDCAD snapshot open 1.3424-28, overnight range 1.3419-1.3447, close 1.3425, WTI $78.24, Gold $1884.49
The Canadian dollar drifted aimlessly in aa quiet overnight session as traders await the release of the US inflation report for December.
The CPI data is a big deal this month. The Fed slowed its pace of rate hikes in December (from 75 bps to 50 bps) and although they expressed a hawkish view, said they were data dependent.
The latest batch of top-tier data which included nonfarm payrolls and ISM services PMI showed inflation components weakening which may be an indication that previous rate hikes were beginning to have an impact.
If US CPI is lower than expected (consensus 6.5% y/y), that may mean the Fed will only raise rates by 25 bps on February 1. A higher-than-expected result would ensure another 50-bps increase.
The market appears to be positioned for a weak CPI print, which suggests markets will react very poorly to a higher than expected result.
EURUSD is trading with a modest bid in a 1.0444-1.0774 range, underpinned by hawkish ECB rhetoric. The prospect of sharply higher ECB rates and a weaker than expected CPI report that may force the Fed to pause hiking rates, may see EURUSD rally towards 1.1000. ECB Consumer Inflation expectations declined. Median expectations for inflation over the next 12 months decreased from 5.4% to 5.0%, while expectations for inflation three years ahead edged down from 3.0% to 2.9%.
GBPUSD traded in a 1.2135-1.2190 range, with prices tracking broad US moves ahead of the inflation data. GBPUSD gains are expected to lag those of EURUSD due to the poor UK economic outlook. That may change as the UK is far further from the Russia Ukraine war zone then Germany.
USDJPY plunged from 132.48 to 130.82 due to rampant speculation that the BoJ will tighten again next week. Analysts are suggesting there will be further policy tweaks after a report saying BoJ officials will review the side effects of its ultra-easy monetary policy.
AUDUSD is in the middle of its 0.6889-0.6923 overnight range supported by news Australia’s trade surplus widened by AUD $450 million to AUD $13.201million.
In addition to CPI, US weekly jobless claims are also on tap.
