- US inflation expected to fall to 3.1% y/y from 4.0% in May.
- RBNZ leaves rates unchanged at 5.5%.
- US dollar extending losses.
USDCAD: open 1.3263-67, overnight range 1.3247-1.3280, close 1.3280, WTI $75.12, Gold $1935.40
The Canadian dollar is testing resistance ahead of this morning’s interest rate decision and release of the Bank of Canada Monetary Policy Report (MPR). Most economists expect a 25 bp rate hike and clearer direction from updated economic forecasts in the MPR. USDCAD will rally if the BoC leaves rates unchanged.
The key focus for global markets is the US inflation report. Headline CPI is expected to have cooled dramatically, falling from 4.0% y/y in May to 3.1% in June. That number is getting a lot of attention, but it is the Core-CPI reading that is the Fed’s focus. It is expected to have cooled as well, falling to 5.0% y/y from 5.3%.
Fed officials will be happy with the direction but not the level as 5.0% is still 2 ½ times its inflation target. Traders will get some fresh insight into US interest rates from speeches by Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, and Minneapolis Fed President Neal Kashkari who speak after the data is released.
Wall Street closed in positive territory yesterday, but Asian equity indexes finished with a mixed tone. Japan’s Nikkei fell 0.81% due to the falling yen, while Australia’s ASX 200 rose 0.38% on higher commodity prices.
European bourses are perky led by a 1.16% gain in the UK FTSE 100 and a 0.83% rise in the German DAX index. The US 10-year Treasury yield is steady at 3.94% after peaking at 4.09% earlier this week. That is a sign that bond traders believe the Fed is very close to ending this rate hiking cycle.
EURUSD traded in a 1.1008-1.1036 range supported by bullish technicals that target 1.1100 while prices are above 1.0970.
GBPUSD traded in a 1.2212-1.2970 range and is trading at the session low in early NY. GBPUSD downside may be limited by the hawkish outlook for UK interest rates while traders speculate that Fed hikes are nearly completed.
USDJPY selling pressures continued unabated overnight, causing the currency pair to fall from 140.36 to 139.32. It has experienced a 3.7% decline over the past two weeks. Traders are rushing to unwind their long USDJPY positions and taking on new short USDJPY positions,
anticipating that the Bank of Japan will finally tighten monetary policy.
AUDUSD traded within the range of 0.6684 to 0.6740, with prices closely following the broad US dollar sentiment. Traders are adopting a defensive stance in anticipation of today's US inflation data.
NZDUSD rallied from 0.6198 to 0.6237 following the decision of the Reserve Bank of New Zealand (RBNZ) to keep interest rates unchanged at 5.50%. After raising rates 12 times in a row, policymakers felt it was time to take a breather. The RBNZ statement stated, "Interest rates are constraining spending and inflation pressures as anticipated and required. The committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range." However, prices dipped to 0.6195 in early NY trading as traders believe that the New Zealand rate-hiking cycle has come to an end.
