– US CPI spurs September rate cut fever.
– Canadian dollar underperforms vs majors.
– US dollar opens sharply lower from yesterday, consolidates losses overnight.
USDCAD: open 1.3617, overnight range 1.3511-1.3635, close 1.3634, WTI $83.56, Gold, $2405.09
The Canadian dollar rallied yesterday, but its gains were shallow and short-lived. The catalyst for the rally was a cool U.S. CPI report that goes a long way to satisfy Fed Chair Jerome Powell’s criteria of needing to see a sustainable lower inflation trend. It also compliments Mr. Powell’s Senate testimony earlier this week when he said, “After a lack of progress toward our 2 percent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress. More good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”
Bond traders were happy, and they drove the U.S. 10-year Treasury yield down to 4.166% from a pre-CPI peak of 4.30%. The CME FedWatch tool suggests there is a 93% chance that the Fed reduces rates on September 18. Today’s Producer Price Index, Michigan Consumer Sentiment, and Michigan 5-year Consumer Inflation expectations results should keep the rate cut hopes alive.
Asian equity indexes closed higher except Japan’s Nikkei 225 index, which lost ground due to the slumping yen. Australia’s ASX 200 closed with a 0.88% gain. European bourses are heading into the weekend in positive territory, led by a 0.71% rally in the French CAC 40 index. S&P 500 futures are flat. Gold (XAUUSD) is closing out the week with an 18% gain.
WTI oil traded in an 82.78-83.74 range with gains capped by mixed Chinese trade data suggesting China’s economic growth is still sluggish. Support is derived from hopes that lower global rates will spark fresh demand.
EURUSD is consolidating yesterday’s gains in a 1.0862-1.0892 band. The fallout from the French election has faded for the time being, leaving the Fed’s interest rate outlook to provide direction. The short-term EURUSD technicals are bullish above 1.0800.
GBPUSD traded higher, rising from 1.2902 to 1.2962 range due to the lingering impact of better-than-expected U.K. growth data and comments by a BoE official suggesting rates need to remain elevated for a bit longer.
USDJPY got hammered yesterday, falling from 161.76 pre-CPI to 157.45 in its wake. Elevated Fed rate cut speculation triggered the selling, but unconfirmed (but certain) BoJ intervention exacerbated the selling.
AUDUSD drifted in a 0.6754-0.6779 band, supported by broad U.S. dollar weakness but gains limited due to mixed Chinese trade numbers