– Fed Chair Powell avoids talking about monetary policy
– Markets are directionless ahead of Thursday’s US inflation report
– US dollar opens on mixed note-AUD is the top performing currency overnight
USDCAD snapshot open 1.3421-25, overnight range 1.3413-1.3440, close 1.3427, WTI $75.32, Gold $1885.22
The Canadian dollar is struggling to find its footing. The positive sentiment that followed Friday’s better than expected Canadian employment report has faded and traders are looking externally for direction.
Fed Chair Jerome Powell disappointed markets yesterday. He was attending a conference in Stockholm and traders were hoping to hear is current view on the economic outlook after Friday’s nonfarm payrolls data showed a drop in average hourly earnings, followed by a weaker than expected ISM report. It didn’t happen.
Powell didn’t say anything about those reports, but he did make a case for the Fed to be free of political interference. He said the Fed remained strongly committed to lowering inflation and that should be its focus. They should not address issues that are not related to its mandate of low inflation and full employment. He emphasised that “We are not, and will not be, a ‘climate policy maker.”
The lack of an economic commentary forced traders to unwind hawkish trades, which led to Wall Street closing with gains.
The Canadian dollar drifted lower overnight and consolidated the losses in a fairly narrow range overnight. The impact from Friday’s Canadian employment data as has support from the outlook from West Texas Intermediate oil (WTI) prices.
Oil traders were expecting prices to rally towards the $100.00/barrel area after China reopened its economy sooner than expected, and policymakers announced a series of stimulative fiscal measures. In addition, the oil price cap on Russian seaborne shipments and other sanctions, combined with concerns that Opec cuts production further, was expected to boost prices sharply higher from the December low.
It is not happening, yet. Tuesday, the American Petroleum Institute (API) reported that US crude inventories rose by 14,89 million barrels which limited gains in the near-term.
Markets are awaiting Thursday’s US inflation data for December and the results are expected to trigger sharp moves in equity and FX markets.
JP Morgan economists are suggesting that if December CPI rises 6.5% (Core 5.7% y/y) which is the consensus, the S&P 500 index will rally between 1.5 and 2.0%.
A higher-than-expected result, which they assign a low probability to, would trigger a 2.5-3% plunge.
That risk of that type of market volatility is keeping traders sidelined today.
EURUSD traded in a 1.0727-1.0757 range, supported by hawkish comments from ECB officials.
GBPUSD traded lower in a 1.2119-1.2177 range due to ongoing UK economic concerns
USDJPY rallied inside a 132.08-132.74 range on position adjusting ahead of the US CPI data.
AUDUSD firmed in a 0.6887-0.6924 range after November CPI rose to 7.3% y/y and Retail Sales (actual 1.4% m/m in November) was higher than expected.
The US and Canadian economic calendars are empty.