– Canada August inflation report on tap
– Sweden’s Riksbank hikes rates 100 bps
– US dollar gives back some gains, NZD underperforms
USDCAD snapshot: open 1.3291-95, overnight range 1.32229-1.3299, close 1.3251, WTI $85.65, Gold $1667.80
The Canadian dollar see-sawed overnight, peaking in Asia and giving back all its gains in Europe.
Global markets are jockeying for position ahead of Wednesday’s FOMC meeting. The Fed is widely expected to follow a 75 bp rate hike with a hawkish statement focused on bringing inflation down to its 2.0% target.
Those concerns drove the US 10-year Treasury yield to 3.542% in NY today from 3.40% yesterday and drove S&P 500 futures lower overnight.
Canadian dollar traders are awaiting today’s Canadian inflation data.
Canada’s inflation is expected to have cooled in August. Headline CPI is forecast at 7.3% y/y compared to 7.6% in July, while Core CPI will tick down to 6.0% from 6.1%. Lower numbers may boost USDCAD on the assumption the Bank of Canada will have less incentive to raise rates aggressively, in contrast with the FOMC outlook.
Asian equity indexes ignored Wall Street weakness and squeezed out gains. The Nikkei returned from a holiday and posted a 0.44% gain, while Australia’s ASX 200 index rose 1.29%. European bourses are in the red, while oil and gold prices are nearly unchanged.
Sweden’s Riksbank surprised traders with a 100 bp rate hike rather than the 75 bps expected. The statement warned of further rate increases and said rates would remain elevated until the third quarter of 2025.
EURUSD did not get any traction from the Swedish action but suffered following an outsized jump in German PPI in August. PPI rose 7.9% from 5.3%m/m and rose 45.8% y/y. The gains were due to soaring energy costs. ECB policymaker Madis Muller said that Eurozone interest rates are historically low and well below the level where increases would stifle economic growth.
EURUSD traded in a 0.9991-1.0050 range and is at the low in early NY.
GBPUSD bounced in a 1.1411-1.1460 band with price action following S&P 500 futures moves. The currency pair is getting a bit of support from expectations of a hawkish Bank of England monetary policy meeting on Thursday.
USDJPY rallied from 142.94 to 143.81 due to the jump in the US 10-year Treasury yield, although FX intervention fears limited gains. Japan’s inflation data was higher than expected but not a factor for traders.
AUDUSD traded defensively in a 0.6695-0.6746 band, while NZDUSD traded negatively in a 0.5906-0.5974 range. AUDNZD buying exacerbated NZDUSD weakness.
US Building Permits and Housing Starts are due.