- ECB on hold, while Fed is in rate cutting mode
- US inflation expected to rise
- US dollar recoups some losses
USDCAD open 1.3840 overnight range 1.3831-1.3849, close, 1.3834, WTI 62.59, Gold 3646.53
The Canadian dollar moved back from the brink yesterday and traded sideways overnight. The Loonie is suffering because of a weak domestic economic outlook, rising unemployment and the trade war with the US.
The Carney government announced a number of major developments that are being fast-tracked to help ease the reliance on the US government. Unfortunately, they are long-term projects and will do nothing to support the currency in the near term.
The Fed and BoC rate decisions are Wednesday and traders will be reluctant to get too involved until then.
Yesterday’s US CPI report reinforced the view that inflation is not yet under control. Food and energy costs moved higher, while Core-CPI climbed for the third straight month. Markets are convinced a 25 bp cut will be delivered next Wednesday, leaving traders waiting for Powell’s press conference. With no meaningful US data due today, Friday trading is expected to remain subdued.
Asian equity markets ended the session in positive territory. Japan’s Topix gained 0.06%, Australia’s ASX 200 added 0.89%, and Hong Kong’s Hang Seng advanced 1.16%.
As of 7:30, European equities are negative. . The French CAC 40 is down 0.46%%, the German DAX has lost 0.17%, the UK FTSE 100 has climbed 0.40% and S&P 500 futures are flat. The US Dollar Index (DXY) is 97.67 and the US 10-year Treasury yield is 4.047%.
EURUSD traded between 1.1713 and 1.1748 following the ECB meeting. Rates were left unchanged, which was fully expected, but President Lagarde struck a slightly hawkish tone, suggesting the deflationary cycle had ended and risks were more evenly balanced. Her remarks, combined with the US inflation report, kept the uptrend that began in early August intact while the pair remains comfortably above 1.3400.
GBPUSD stayed in the middle of its 1.3530-1.3581 range. A string of disappointing economic releases capped gains. July GDP was flat, in line with forecasts but down from June’s 0.4% growth. Industrial production fell 0.9% m/m, manufacturing output dropped 1.1% m/m, and the trade deficit widened.
USDJPY moved in a 147.13-147.98 range and is trading near the top of that band. Investors are weighing softer US Treasury yields against domestic political turmoil that could delay a BoJ rate hike.
AUDUSD extended its rally, holding to a tight 0.6649-0.6669 range. The pair is supported by broad US dollar weakness tied to expectations for deeper Fed easing, while the RBA keeps its policy steady.
US Michigan Consumer Confidence and Canada Building Permits and Capacity Utilization reports are on tap.
