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USD / CAD - Canadian Dollar Rebounds

- Fed officials suggest they may “skip” a June rate increase.

- Eurozone inflation cools more than expected.

- USD drifts lower overnight; CAD and GBP outperform.

FX at a glance

USDCAD snapshot: open 1.3564-68, overnight range 1.3563-1.3583, close 1.3575, WTI $68.18, Gold $1960.45.

The Canadian dollar is getting chopped about by Chinese data. Yesterday, the Canadian dollar sank when China’s National Bureau of Statistics (NBS) manufacturing PMI was worse than expected. Overnight the Caixin (a private company) Chinese PMI rose more than expected. Global risk sentiment improved, and the Canadian dollar rallied.

The Canadian dollar also got a boost following news that the US House of Representatives passed the debt ceiling bill, paving the way for the Senate to follow suit.

However, the key catalyst for the Canadian dollar gains was the introduction of “skip” to the Fed interest rate debate. Fed Vice Chair nominee Philip Jefferson and Philadelphia Fed President Patrick Harker spoke about skipping a rate increase in June while stressing that skipping is different than pause.

Mr Harker said a pause implies that rates will remain unchanged while skipping means rate hikes are still likely.

Those comments changed the odds for the June 14 FOMC meeting from 67% for a rate hike to 67% for a rates to be left unchanged.
The US dollar drifted lower on the news while global equity indexes rallied.

Canadian dollar traders are ignoring slumping crude prices. West Texas Intermediate (WTI) are consolidating recent losses in a $67.54/barrel-$68.81/barrel range, ahead of the Opec meeting this weekend.

EURUSD rose from 1.0663 to 1.0714 and barely budged after Euro May inflation cooled to 6.1% y/y from 7.0% in April (forecast 6.3%).

GBPUSD climbed from an overnight low of 1.2403 to 1.2469 in NY. Prices got support from a higher than expected UK Manufacturing PMI (actual 47.1, vs forecast 46.9).

USDJPY traded erratically, rising from 138.97 in Asia to 139.94 in Europe before retreating to 139.51 in NY. The currency fell due to expectations that the Fed would leave rates unchanged on June 14. Jibun Bank Manufacturing PMI was 50.6 compared to 50.9 previously.

AUDUSD is at the top of its 0.6486-0.6523 range, supported by improved risk sentiment following Chinese PMI data and the Fed's less hawkish outlook. Australian manufacturing PMI rose to 48.4 from 48.0.

Today’s US data includes weekly jobless claims, ADP employment change, construction spending, and ISM Manufacturing PMI.