- FX markets trade quietly ahead of Wednesday’s US CPI data.
- Chinese Trade data disappoints.
- US dollar grinds out small gains overnight.
USDCAD snapshot: open 1.3368-72, overnight range 1.3367-1.3383, close 1.3373, WTI $72.50, Gold $2028.39
The Canadian dollar rally stalled yesterday, and prices consolidated the move for the rest of the day and overnight.
Global FX activity was understated with traders sidelined until the US April inflation report, due Wednesday. CPI is expected to rise 0.4% m/m, a tad higher than the 0.1% increase seen in March. The consensus forecast for the more critical Core CPI reading is 0.4% m/m, unchanged from March.
The danger is if inflation is higher than expected. That’s because the market prices in about 100 bps of Fed rate cuts by December, despite the Fed’s March dot-plot projections suggesting no rate cuts. In addition, policymakers repeatedly warn that although inflation may have peaked, it is still a long way from the Fed’s 2.0% target.
A higher than expected CPI result would trigger a sharp US dollar rebound and sink the Canadian dollar in the process.
The US dollar inched higher in quiet overnight trading supported by disappointing Chinese trade data. Exports rose 8.5%, y/y far lower than the 14.8% recorded in March while imports fell 7.9% compared to -1.4% y/y. The negative sentiment was tempered by a report from Goldman Sachs suggesting the results were consistent with historical patterns. EURUSD traded defensively, falling from 1.1004 to 1.0974 mainly due to profit-taking ahead of tomorrow’s US data.
GBPUSD drifted in a 1.2598-1.2639 band with traders focused on upcoming US economic reports while ignoring domestic data. Halifax House Prices fell 0.3% m/m in March, compared to the forecast for a 0.2% increase. The BoE meets on Thursday and expects to hike rates 25 bps while leaving the door open to further increases. The GBPUSD technicals are bullish above 1.2520.
USDJPY rallied from 135.12 to 135.32 in Asia during BoJ Governor Kazuo Ueda’s comments to parliament. He didn’t say anything new, and prices retreated steadily to 134.73 in NY.
AUDUSD traded narrowly in a 0.6757-0.6785 band. Gains were capped by weaker than expected Chinese trade data and disappointing Australian retail sales (actual -0.6% q/q vs forecast -0.4%).
The US data is second tier and will be ignored.
