– FOMC minutes are the highlight of a light US economic calendar.
– Nonfarm payroll revisions to benchmark could roil markets.
– US dollar continues to fall on dovish Fed speculation.
USDCAD: open 1.3609, overnight range 1.3599-1.3626, close 1.3620, WTI $73.45, Gold, $2505.49
The Canadian dollar continues to grind out gains, driven by broad-based selling pressure on the US dollar against major G-10 currencies.
Yesterday, Statistics Canada reported that the Consumer Price Index (CPI) increased by 2.5% year-over-year, marking the slowest pace of inflation since March 2021. Some media outlets headlined the news as “Inflation Rate Falls to 2.5%,” which can be misleading, as it suggests inflation is declining. In reality, prices are still rising, just at a slower rate than in previous months—you’re still paying more for goods and services.
The inflation data strengthens the case for the Bank of Canada (BoC) to cut rates in September, likely by 25 bps at each meeting through the end of this year and into 2025. Normally, such a dovish outlook would weigh on the Canadian dollar, but expectations for another 50-75 bps in Fed rate cuts this year are keeping the CAD/US 10-year interest rate spread steady.
Oil prices remain choppy with a negative bias, trading within a 72.91-73.66 range. Hopes for a Hamas/Israel ceasefire are fading, while OPEC’s planned production cuts and a slight increase in US crude inventories are limiting potential gains.
The FOMC minutes from the July 31 meeting are due this afternoon. Analysts will be looking for indications of how concerned policymakers are about the US employment market, which could gain even more significance if today’s Nonfarm Payrolls Revision reveals a sharp downside correction in the number of jobs created in the 12 months ending March 2024.
EURUSD is trading in a narrow 1.1110-1.1133 range, with a slight upward bias driven by overall weakness in the US dollar. However, enthusiasm remains subdued due to a lack of significant Eurozone data ahead of Thursday’s German and Eurozone PMI releases.
GBPUSD is showing a modest upward trend within a 1.3010-1.3039 range, supported by differing expectations for UK and US interest rates. While the Bank of England is likely to keep rates steady in the near term, the Federal Reserve is anticipated to cut rates on September 18.
USDJPY saw a steady climb overnight, rising from 144.97 to 146.24 before easing to 146.06 in New York. Japanese trade data revealed a 10.3% year-over-year increase in exports for July (forecast 11.5%), significantly better than the 5.4% growth recorded in June, signaling economic recovery.
AUDUSD traded in a 0.6733-0.6753 range, with support coming from recent hawkish remarks by RBA Governor Michele Bullock.
Today’s Canadian data includes the Industrial Product Price Index, Raw Materials Price Index, and New Housing Price Index. In the US, there are no economic reports, just the FOMC minutes this afternoon.