– US May CPI expected to be little changed.
– FOMC interest outlook in focus.
– US dollar eases slightly ahead of inflation data and Fed.
USDCAD: open 1.3747, overnight range 1.3741-1.3761, close 1.3759, WTI $78.88, Gold, $2313.85.
The Canadian dollar drifted higher overnight but not spectacularly, and it remained well within yesterday’s trading band.
It is a big day for markets. The US May inflation report and the FOMC meeting are on tap, and either one of them could cause fireworks. May CPI is expected at 0.3% m/m for both headline and core, which is not a good result for those hoping that the Fed will cut rates in September. It is not all bad news. US inflation is falling, but it is not falling as fast as needed to prompt a rate cut.
The FOMC is universally expected to leave interest rates unchanged, mainly because most Fed policymakers have said as much since the last meeting in May. This is also a meeting when updated projections are available, and the dot-plot interest rate forecasts are key. At the moment, the odds for a September rate cut are 50/50 according to the CME Fedwatch tool. That may be wishful thinking as most Fed officials have stressed that they need to be patient and see a sustainable downward trend in inflation before they would consider cutting rates.
Oil prices managed to squeeze out gains, rising from 78.03 to 78.98. Prices got a boost after the American Petroleum Institute (API) reported that US crude inventories fell by 2.4 million barrels last week. They chose to ignore the latest International Energy Agency report that predicted oil demand would peak by 2029 and be followed by a huge surplus.
EURUSD traded in a 1.0734-1.0755 range. German CPI data was as expected and not a factor. EURUSD gains are limited due to uncertainty around the French elections with the first round of votes due June 30. French Finance Minister Bruno Le Maire invoked the horror of the UK Liz Truss/Kwasi Kwarteng bond debacle if Marine LePen’s right-wing party gains a majority.
GBPUSD is slightly bid in a.2732-1.2760 range despite a stagnant economy (April GDP 0%) and weak Manufacturing and Industrial Production data.
USDJPY traded in a 157.04 to 157.43 range underpinned by the unchanged US 10-year Treasury yield (4.40%).
AUDUSD drifted higher, rising from 0.6598 to 0.6623 range in a quiet session ahead of today’s US data and the FOMC meeting. News that Chinese Premier Li Qiang will be touring Australia on the weekend is further evidence of improving relations.