– ECB President warns of higher interest rates.
– Canada May Core-CPI expected unchanged at 0.5% m/m.
– US dollar opens mixed-commodity currencies rise.
USDCAD snapshot: open 1.3139-43, overnight range 1.3119-1.3954, close 1.3156, WTI $68.52, Gold $1923.98
The Canadian dollar inched lower in Asia but retraced most of its gains in Europe and is trading above its closing level in early NY markets.
The domestic focus is on today’s inflation report. Statistics Canada’s May CPI is expected to drop to 3.4% y/y from 4.4% in May, mainly due to lower energy prices. However, the Bank of Canada (BoC) has its own inflation measures, and its Core-CPI is expected to remain unchanged at 0.5%. A higher than expected reading suggests a more aggressive BoC interest rate response, which would undermine USDCAD, while a weaker report suggests the BoC could leave rates unchanged in July.
The BoC surprised markets when it raised rates by 25 bps in June. They are widely expected to repeat the action on July 12, and it would take a sharply lower core-CPI result to change that view.
The short-term USDCAD technicals are bearish while prices are below 1.3240 and are looking for a break below 1.3100 to extend losses to 1.3000.
Elsewhere, the People’s Bank of China (PBoC) raised some eyebrows when they fixed USDCNY at 7.2098, sharply below the 7.2194 expected by the market. Analysts suggest the move was officials signaling their unhappiness with the sharp fall in CNY recently. Authorities are also pushing back against speculators by arresting finance commentators who express any view other than the officially sanctioned outlook.
European traders’ attention is focused on the ECB Central Bank meeting in Sintra, Portugal. President Christine Lagarde opened the session by expressing a hawkish outlook for interest rates. She said, “We have made significant progress, but faced with a more persistent inflation process, we cannot waver, and we cannot declare victory yet. Inflation in the euro area is too high and is set to remain so for too long.”
EURUSD is at the top of its 1.0903-1.0952 range and is looking to extend gains to 1.1050.
GBPUSD is lagging EURUSD moves and trading in a 1.2705-1.2757 range mainly because UK rate hikes are fully priced in.
USDJPY chopped around in a 143.30-143.93 range, supported by divergent Fed and BoJ interest rate policies, but gains are capped because of BoJ intervention concerns.
AUDUSD traded defensively in a 0.6671-0.6719 range due to lower commodity prices.
Today’s US economic data includes May Durable Goods Orders (forecast -1.0%, vs 1.1% in April), Housing Price Index (0.3% m/m vs 0.6% in March), S&P Case-Shiller April Home Price Index (-2.6% y/y, previously -1.1%), and June Consumer Confidence.