- Eurozone inflation as expected while UK inflation gain surprises.
- WTI oil prices dip below support,
- US dollar rebounds-AUD and NZD underperform.
USDCAD snapshot: open 1.3429-33, overnight range 1.3387-1.3449, close 1.3388, WTI $79.36, Gold $1974.85.
The Canadian dollar rally ended abruptly overnight. A veil of caution enveloped traders after mixed economic data, hawkish comments by Fed officials, and by a rash of diverse US quarterly earnings reports that muddled the economic outlook.
Wall Street closed with small losses, which unsettled the major Asian equity indexes. Japan’s Nikkei 225 ticked down 0.18% while Australia’s ASX 200 closed in positive territory, albeit with just a 0.7% gain. European bourses opened indecisively and are trading with minor losses, led by a 0.32% dip in the UK FTSE 100 index. S&P 500 futures are down 0.54%.
Gold prices took a big hit. XAUUSD dropped $38.05, peak to trough in overnight markets, after the odds for a summer Fed rate cut evaporated. The first rate decline is not expected until November. The move below support at $1990.00 risks further losses to $1937.00.
Oil traders were also spooked by concerns that US rates would remain elevated for longer than previously expected. They think steady to higher US interest rates will put a damper on global growth and reduce demand. A drop below $78.80 will send prices to the March 31 peak of $75.75 and fill the price gap from when Opec surprised markets by announcing production cuts.
The Canadian dollar is vulnerable to negative sentiment if the Public Service Alliance of Canada follows through on plans to strike today. The union represents one in five Canadian workers, although none are in the private sector.
The union is demanding a 13.5% wage bump, over three years, getting ready to parade on the streets holding signs demanding "Fair Wages Now." The problem is that, according to the Parliamentary Budget Office (PBO), public workers already earn an average of $125,000/ year on average, including salary, bonuses, and benefits. So, what is unfair?
The Liberal government is not known for financial prudence and is likely to cave-in to union demands. If so, the settlement could be another inflation trigger, and limit the Bank of Canada’s ability to avoid raising interest rates.
EURUSD traded in a 1.0918–1.0983 range with traders ignoring Eurozone inflation data, which at 6.9% y/y was on target.
GBPUSD rallied then sank in a 1.2394-1.2471 after UK inflation jumped to 10.1% y/y in March (forecast 9.8%). The gains were not sustained due to broad US dollar strength.
USDJPY climbed to 135.14 from 134.11 after the US 10-year Treasury yield rose to 3.63% from 3.507% on Monday.
AUDUSD dropped to 0.6186 from 0.6216 due to lower commodity prices.
The US and Canadian data calendars are empty.
