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USD / CAD - Canadian Dollar direction undecided

- Political uncertainty leaves EURUSD on the defensive.

- Plenty of central bank meetings this week, although expectations are low.

- US dollar opens slightly firmer vs majors in quiet trading.

USDCAD: open 1.3742, overnight range 1.3729-1.3752, close 1.3738, WTI $78.00, Gold, $2319.89

The Canadian dollar is directionless but is trending lower, guided by a downtrend channel that has been intact since the beginning of June.

The Canadian dollar story is an interest rate story. The Bank of Canada cut rates by 25 bps on June 5 and is expected to cut them again at either the July 24 or September 4 meeting. Meanwhile, the Fed not only left interest rates unchanged at last week’s meeting but policymakers downgraded their interest rate cut projections. In March, the summary of Economic Projections (SEP) dot-plot indicated 3 rate cuts but the June dot-plot projection only has 1.

The widening CAD/US 10-year bond spread, which is -92.7 bps today, supported Canadian dollar selling. It’s a popular trade and the Chicago CME IMM position of traders report indicates speculators are very short Canadian dollars. The size of that position suggests further Canadian dollar downside will be a struggle.

The Canadian dollar may see additional volatility today because over $2.0 billion of option strikes in the 1.3750-80 area are expiring.

The parade of central bank meetings starts tomorrow with the Reserve Bank of Australia, followed by Norway’s Norges Bank, the Swiss National Bank, and the Bank of England on Thursday. Rates are expected to be left unchanged at all the meetings.

EURUSD traded firmer in a 1.0685 to 1.0715 range after National Party leader Marine LePen soothed fears and said she would not seek President Emmanuel Macron’s resignation if she is elected.

GBP traded negatively in a 1.2659-1.2691 band, weighed down by EURGBP buying. UK traders are fixated on the July 4 election which is also why the BoE will not say anything that could disrupt the vote.

USDJPY climbed steadily, rising from 157.17 to 157.70 despite soft US Treasury yields. BoJ President Kazuo Ueda testifies before parliament on Tuesday.

AUDUSD traded quietly and bearishly in a 0.6592-0.6619 range. Prices were undermined by soft Chinese Industrial Production data which weighed on iron ore prices. Premier Li Qiang’s visit down under is paying dividends.

Canadian Housing Starts and the NY Empire State Manufacturing Index are on tap.