The Canadian dollar is the worst-performing major G-10 currency following yesterday’s higher-than-expected U.S. inflation report.
U.S. Consumer Price Index jumped 0.9% m/m in October, the highest reading in 30 years, and that news led to a stampede to buy U.S. dollars. U.S. inflation was expected to be slightly higher than the 0.4% forecast, but what spooked markets was that the gains were broad-based rather than concentrated in energy.
U.S. 10-year Treasury yields soared following the data, rising to 1.57% from 1.461%, on speculation that the Federal Reserve will raise interest rates as soon as June 2022.
The news was enough to derail the US stock market rally, albeit just briefly. The S&P 500 fell 0.82% and the Dow Jones Industrial Average lost 0.66%, but Futures are suggesting those markets will open in positive territory today.
Gold prices surged as the precious metal is a traditional inflation hedge. XAU/USD climbed to $1,865.41 overnight from $1821.00 yesterday.
The Canadian dollar underperformance was exacerbated as West Texas Intermediate (WTI) oil prices slumped. WTI prices were well-bid at $83.45/barrel before the inflation data due to fears that prices would continue to climb due to ongoing supply/demand imbalances into the high demand Northern Hemisphere heating season.
Those fears eased marginally after the Energy Information Administration (EIA) reported weekly crude inventories increased by one million barrels.
Oil prices came under additional pressure when President Joe Biden said his government would look at measures to alleviate prices, which could mean releasing oil from the Strategic Petroleum Reserves.
USD/CAD blasted above major resistance levels in the $1.2500 area, which included 100- and 200-day moving averages. The short-term outlook is decidedly bullish, with a break above $1.2590, targeting $1.2670 if prices stay above $1.2470.
EUR/USD crashed through major support at $1.1500, and the bearish technicals suggest further losses to $1.1300. The prospect of higher U.S. rates combined with unchanged European Central Bank rates is weighing on the currency pair. The European Commission upgraded Gross Domestic Product growth for 2021 to 5.0% (4.3% in May) but downgraded the forecast for 2022 to 4.3% from 4.8%. The news was ignored.
GBP?USD dropped to $1.3365 from $1.3432 due to disappointing U.K. economic data, and Brexit woes. U.S. GDP rose 1.3% in the three months to September, below the forecast for a 1.5% rise.
AUD/USD dropped due to broad U.S. dollar demand and after employment fell 46,500 rather than increasing 50,000.
There are no Canadian or U.S. economic reports today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians