– Risk sentiment turns negative on China growth concerns.
– Traders are cautious due to G-7 meeting, and debt ceiling talks.
– US dollar rallies overnight.
USDCAD snapshot: open 1.3491-95, overnight range 1.3464-1.3534, close 1.3478, WTI $70.98, Gold $1984.31
The Canadian dollar appeared on the verge of a sharp rally yesterday, after Canadian inflation was higher than expected.
Statistics Canada says, “The Consumer Price Index (CPI) rose 4.4% year over year in April, following a 4.3% increase in March. This was the first acceleration in headline consumer inflation since June 2022. On a year-over-year basis, higher rent prices and mortgage interest costs contributed the most to the all-items CPI increase in April 2023.
The news caught traders by surprise. They expected inflation to decrease allowing the Bank of Canada to remain on hold. Yesterday’s results put a rate hike on the table, again.
In addition, housing prices are on the rise and the bank may wish to pre-empt another overheated market by raising interest rates.
USDCAD dropped from 1.3467, pre-CPI, to 1.3402 in the immediate aftermath of the data but reversed. Prices rallied to 1.3478 by the close and continued higher in Asia, before sliding to 1.3480 in early NY trading.
It was the US April Retail Sales results that fueled the USDCAD rally. Retail sales rose 0.4% compared to a 0.7% decline in March, providing evidence that consumers were still spending which downgraded the risks of a recession.
Traders became nervous about China’s disappointing growth and drove USDCNY (onshore) and USDCNH (offshore) above 7.000 for the first time since December. That rally boosted the US dollar against the majors as China is a major trading partner for all G-10 nations.
EURUSD traded in a 1.0822-1.0873 range and ignored slightly firmer Eurozone April HICP data. (actual 0.6% m/m, forecast 0.7%).
The intraday EURUSD technicals are bearish with a break below 1.0850 suggesting a retest of the 1.0740 area.
GBPUSD bounced in a 1.2423-1.2492 range with prices tracking broad US dollar moves. Traders ignored comments by Bank of England Governor Baily who defended the bank’s inflation-fighting decisions.
USDJPY climbed from 136.31 to 137.17 with gains underpinned by steady to firm US 10 Treasury yields and dovish BoJ monetary policy.
AUDUSD traded in a 0.6630-0.6670 range due to concerns about slower China growth and broad US dollar strength.
US April Housing Starts data is due.