- Bank of Canada expected to leave rates unchanged today.
- US CPI and FOMC minutes on tap
- US dollar traded quietly overnight and opens on a mixed note.
USDCAD snapshot: open 1.3453-58, overnight range 1.3451-1.3469, close 1.3464, WTI $81.77, Gold $2010.92
The Canadian dollar drifted higher in a quiet overnight session with traders content to await the US inflation report due today.
The March CPI reading has taken on an exaggerated aura of importance as it is the last piece of top-tier US economic data until the May 3 FOMC meeting. Headline CPI is expected to fall to 5.2% y/y from 6.0% while the more important Core-CPI data is expected at 0.4% m/m (previous 0.5%) and 5.6% y/y (previous 5.5%).
If core-CPI is higher than expected, the US dollar will rally, and stocks will tumble. A lower than expected core-CPI reading will boost Wall Street and undermine the greenback.
Traders are betting on a lower CPI reading and expect the first Fed rate cut in September. Fed officials appear to agree. NY Fed President John Williams suggested one more rate hike and then a pause, saying "inflation is still very high." Chicago Fed President Austan Goolsbee suggested the Fed should be patient due to the recent financial stress. His colleague, Cleveland Fed President Neal Kashkari believes fighting inflation is more important than worrying about banking stress.
Today’s inflation data will overshadow the FOMC minutes from the March 22 meeting.
Canadian dollar traders are awaiting the Bank of Canada monetary policy meeting statement which is expected to be largely unchanged from the one released on March 8. The BoC left interest rates unchanged then and are universally expected to do the same today.
The quarterly Monetary Policy Report is expected to show a small increase in the GDP forecast while noting that inflation remains sticky.
EURUSD traded in a 1.0913-1.0937 range, with traders positioning for a soft US CPI report that knocks the greenback lower and drives EURUSD through resistance above 1.1000. A drop below 1.8650 would negate the upward pressure and target 1.0670.
GBPUSD traded quietly in a 1.2410-1.2445 range. The GBPUSD uptrend since the beginning of March is intact while prices are above 1.2370. A move below that level will extend losses to 1.2230.
USDJPY bounced inside a 133.56-134.04 range. The lingering concern that the BoJ may phase out its ultra-easy monetary policy and soft US treasury yields are reinforcing resistance in the 1.0420 area.
AUDUSD traded narrowly in a 0.6650-0.6676 range supported by general US dollar weakness and speculation that the RBA will hike rates by 25 bps at the next meeting.
NZDUSD traded quietly in a 0.6184-0.6203 range. Electronic card retail sales rose 0.7% m/m and 15.5% y/y in March, which supports the case for another 25 bp rate hike on May 24.
