- Canadian inflation expected to fall (Core-CPI forecast 4.2% y/y)
- China GDP beats forecasts
- US dollar opens lower across the board.
USDCAD snapshot: open 1.3367-71, overnight range 1.3362-1.3395, close 1.3394, WTI $80.59, Gold $2001.11
The Canadian dollar rallied overnight thanks to mildly improved global risk sentiment following better than expected Chinese growth data.
Canadian inflation is expected to have cooled in March. Headline CPI is forecasted at 4.3% y/y (February 5.2%) while the more important Core-CPI is at 4.2% y/y (previous 4.7%).
However, consumers have not seen any relief while grocery shopping, buying booze, or in dairy products.
Bank of Canada officials will be thrilled with a lower inflation reading as it helps to justify the “rates on hold” stance but not happy if trader raise their expectations for a policy rate cut before the end of the year.
If a drop in CPI raises bets for a rate cut, it may undermine the Canadian dollar, or at the very least, function as a drag against gains.
More likely, the report will be quickly forgotten as traders focus on Wall Street and the outlook for US interest rates.
The latest West Texas Intermediate (WTI) oil price rally stalled at $83.40/b. The March 31 news that Opec planned to cut production by 1.6 million barrels/day effective June 1, led to a spike in WTI prices that left a gap on the daily chart between $75-60 and $79.10. That gap will get filled if prices drop below $79.10.
EURUSD traded a 1.0923-1.0982 range. Eurozone and German ZEW Survey results were weak but largely ignored. German Economic Sentiment was 4.1 in April compared to 8.9 in March, which the ZEW survey statement said, “this means no significant improvement in the economic situation is expected in the next six months.”
GBPUSD rallied from 1.2369 to 1.2443 after UK wage data rose higher than expected which raised the odds that the Bank of England would raise rates by 25 bps on May 11.
USDJPY bounced in a 134.07 to 134.70 band with prices supported by the fears of higher US rates for longer.
AUDUSD rose from 0.6699 to 0.6744 after the RBA minutes revealed policymakers discussed a 25 bp rate hike, suggesting that the rate hiking cycle may not be over yet.
Today’s US data includes housing starts and building permits data.