– US inflation expected to fall slightly.
– China relaxes group travel restrictions, improving risk sentiment in Asia.
– US dollar trading defensively ahead of CPI data.
USDCAD: open: 1.3400-04, overnight range: 1.3388-1.3424, close 1.3423 WTI $84.19, Gold $1921.02
The Canadian dollar traded with a bullish bias overnight on the back of broad US dollar weakness.
The Canadian dollar was also supported by higher oil prices. WTI extended its rally that began in June an prices touched $84.87/b overnight.
The rally is being exacerbated by speculative flows that occurred following the Russian and Saudi Arabia production cut extensions.
The FX markets witnessed a sell-off of US dollars overnight in anticipation of today’s US inflation data, which is expected to be lower than initially projected. A lower reading would signify a positive shift in inflation trends. However, unless there’s a significant drop, the impact of these results might be limited, given the considerable time gap until the next FOMC meeting scheduled for September 20.
Hopes for improved China/US relations suffered a setback when President Biden issued an executive order prohibiting Americans from investing in Chinese companies involved in semiconductors and quantum computing.
EURUSD rallied from 1.0968 to 1.1027 due to optimism surrounding a potential decline in US inflation, which suggests the Fed would leave rates unchanged. The ECB Economic Bulletin reiterated that although inflation is on a downward trajectory, it is still expected to remain elevated for a significant duration, further supporting the possibility of another ECB rate hike.
GBPUSD, rose from 1.2708 to 1.2773 due to a general weakness in the US dollar, just ahead of the release of today’s inflation data. It’s worth noting that the downward trend that began in July remains intact, as long as prices remain below the 1.2800 mark.
USDJPY rallied, firmed in Asia, climbing to 144.10 from 143.10 from 143.73 to 144.10 in part, because of the weaker-than-expected July Producer Price Index (actual 0.1% vs forecast 0.2%) Prices then dropped 143.64 in Europe.
AUDUSD climbed from 0.6527 to 0.6564, supported by the news of China lifting a ban on group travel to Australia, which provided a slight boost to prices.
The weekly US jobless claims data is due today.