– EURUSD drops despite inflation rise,
– RBA surprisingly hawkish, AUDUSD rallies
– US dollar opens with a modest bid following Eurozone data.
USDCAD snapshot: open 1.3579-83, overnight range 1.3530-1.3583, close 1.3543, WTI $75.15, Gold $1983.70
The Canadian dollar continued its roller-coaster trading pattern with direction at the mercy of constantly shifting risk-sentiment.
On Monday. USDCAD was poised to break key support in the 1.3520 area, setting the stage for further losses to test the 200-day moving average, which is at 1.3430 today. It didn’t happen.
The US ISM Manufacturing PMI report was higher than expected but still showed the US economy was contracting.
The news re-ignited recession and global slowdown fears, which sparked safe-haven US dollar demand. Treasury Secretary Janet Yellen’s warning that the US could default on its debt by June 1 without a debt ceiling increase, didn’t help sentiment.
USDCAD rallied on the data, alongside broad US dollar demand against the major G-10 currencies.
Asia traders were surprised when the Reserve Bank of Australia (RBA) hiked interest rates by 25 bps. Most economists expected that central bank would not just leave rates unchanged but hint that the rate hike cycle is over.
Instead, Governor Philip Lowe hiked rates by 25 bps. He acknowledged that inflation had moved lower but warned “the central forecast remains that it takes a couple of years before inflation returns to the top of the target range.” Mr Lowe was also concerned that the tight labour market was leading to higher wages. The kicker came we he said, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.”
AUDUSD spiked on the news rising from 0.6630 to 0.6716 and is hovering just above 0.6700 in NY.
The Bank of Canada (BoC) monetary policy statement often has a lot of similarities to that of the RBA, which suggests a degree of caution is warranted ahead of the BoC meeting on May 11.
EURUSD was knocked for a loop after April Core inflation fell 5.6% compared to 5.7% y/y, which overshadowed the headline number which at 7.0% y/y, was higher than expected. Analysts speculated that the lower core-inflation reading would mean the ECB may not be as hawkish as expected at Thursday’s monetary policy meeting. EURUSD dropped from 1.1006 to 1.0949 following the data.
GBPUSD mirrored EURUSD moves and traded in a 1.2455-1.2511 range. Weaker than expected April Manufacturing PMI data exacerbated the drop.
USDJPY traded firmer in a 137.26-1.3778 range supported by higher US Treasury yields and a dovish Bank of Japan monetary policy outlook.
US ISM Manufacturing PMI and Construction Spending data are ahead.