- Bank of England hikes rates to 4.5%, as expected.
- Chinese inflation data softer than expected.
- US dollar opens higher across the board.
USDCAD snapshot: open 1.3405-09, overnight range 1.3365-1.3419, close 1.3372, WTI $73.15, Gold $2027.17
The Canadian dollar rally ended abruptly following yesterday’s US inflation report. The results were inconclusive which sparked the unwinding of some short USDCAD positions.
April CPI ticked down to 4.9% y/y which was a tick below the 5.0% y/y forecast. The results did not do anything to reduce the odds that the Fed will have chopped rates 100 bps by December. However, Core-CPI was unchanged at 5.5% and at the level, the Fed will not be motivated to reduce rates at all.
The US dollar recouped some losses after the data due to profit-taking and caution as there is another nonfarm payroll and inflation report release ahead of the next FOMC meeting on June 26.
Traders will be paying close attention to today’s Producer Price Index data which is expected to rise 0.3% m/m compared to the March drop of 0.5%. A higher than expected reading would suggest that CPI will remain elevated for longer than expected.
EURUSD traded negatively in a 1.0919-1.0997 range. ECB Governing Council member Pablo Hernandez de Cos said the ECB was close to the end of the tightening cycle. He echoed comments from colleague Francois Villeroy who suggested rates were close to peaking. Both comments weighed on the currency.
GBPUSD traded at the bottom of its 1.2567-1.2640 range, then popped to 1.2610 in the wake of the Bank of England hiking rates 25 bps to 4.50%. Prices retreated to 1.2595 with traders awaiting the press conference.
USDJPY dropped to 133.90 in Asia due to retreating US Treasury yields, before rallying to 134.84 just before the NY open. The Bank of Japan Summary of Opinions underscored the dovish bias for monetary policy. Policymakers want to ensure that any small changes to forward guidance aren’t interpreted as indicating imminent rate increases.
AUDUSD could not hang on to its post-US CPI gains and dropped from 0.6795 in Asia to 0.6724 just before NY opened. The losses were partially due to lower Chinese CPI and PPI readings that suggested the economic rebound may be slowing.
NZDUSD mirrored AUDUSD moves and traded in a 0.6332-0.6383 range due to a resurgence in US dollar demand, and hawkish expectations for the RBNZ.
US weekly jobless claims (forecast 245,000) and the Producer Price Index are ahead.
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