– Canada CPI expected to rise 2.1% y/y down from 2.5% in July.
– US Retail Sales forecast is a drop of 0.2% m/m in August.
– US dollar steady and rangebound overnight.
USDCAD: open 1.3584, overnight range 1.3579-1.3599, close 1.3588, WTI $68.69, Gold, $2573.45
The Canadian dollar just spun its wheels in an uneventful overnight session. However, activity should pick up this morning when the Canadian inflation report and the US Retail Sales reports for August are released.
The importance of the Canadian inflation report has diminished somewhat as CPI is within the Bank of Canada’s target range, and policymakers have turned their attention to weak economic growth, as evidenced by a deteriorating labour market. Bank of Canada Governor Tiff Macklem confirmed such a move this weekend when he suggested that a deteriorating labour market may necessitate the need for more aggressive rate cuts. He was also very concerned about trade disruptions leading to larger deviations of inflation from the 2.0% target.
Even so, it is the US economic outlook that is driving FX markets. Today’s US data, which includes Capacity Utilization, Business Inventories, and Industrial Production along with Retail Sales, could raise the odds for a 50 bp Fed rate cut tomorrow above the current 67%. Any evidence that raises the risk of a US recession may lead the Fed to respond aggressively.
EURUSD is trading just above the midpoint of its 1.1115-1.1147 range in early New York action. The pair pulled back from its highs following the release of another weak ZEW survey. German Economic Sentiment was 3.6 compared to the forecast of 17.1. Eurozone Economic Sentiment was 9.3 compared to 17.6 that was expected.
GBPUSD has been on the rise, climbing from 1.3199 to 1.3230, driven by expectations of a 50 bps rate cut from the Federal Reserve, while the Bank of England is likely to hold its rate steady.
USDJPY remained range-bound between 140.32 and 141.25, with the pair trading at 140.59 in New York. Japan’s Finance Minister Shunichi Suzuki reiterated that currencies should reflect economic fundamentals, adding that sharp moves are undesirable—comments that offered no fresh insight. The Bank of Japan is expected to leave rates unchanged at its upcoming meeting on Friday, but concerns about a rapidly appreciating yen may lead to more cautious remarks, especially following a potential 50 bp rate cut by the Fed.
AUDUSD edged higher, moving from 0.6741 to 0.6769, buoyed by increased speculation of a 50 bps rate cut by the Federal Reserve.
However, ongoing worries about China’s economic growth are expected to continue weighing on the Australian dollar. Similarly, NZDUSD saw modest gains amid rising optimism around the Fed’s rate decision.
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