The Canadian dollar traded sideways in an uneventful overnight session. Traders did not want to get involved ahead of today’s U.S. inflation data, which has the potential to cause some fireworks, especially if the results are higher than expected.
July Consumer Price Index is expected to rise 5.3% y/y and 0.5% m/m compared to June’s result of 5.4%, and 0.9%. The results are more important than usual as they may change the tapering narrative in 2021 from just speculation to a certainty.
A slate of Federal Reserve speakers, including Fed Presidents from Chicago, Atlanta, Richmond, Kansas City, and a Fed Governor have suggested that the U.S. economic recovery is fast-approaching the “substantial further progress” milestone, that Fed Chair Jerome Powell said needs to be met before tapering of Quantitative Easing purchases can begin. Chicago Fed President Charles Evans appears to agree. He suggested tapering could start by the end of December. There is more Fed-speak on tap today.
The Democrat controlled U.S. Senate passed a new $3.5-trillion budget plan, in addition to the $1.0-trillion infrastructure plan announced yesterday. The news was met with a collective “meh,” and U.S. equity futures are trading unchanged.
Canadian dollar direction continues to be determined by broad U.S. dollar sentiment and not by domestic economic data. That is just as well, as there are no Canadian economic reports available this week. However, the Canadian dollar has received a modicum of support from the rise in oil prices. West Texas Intermediate (WTI) climbed from $65.20/barrel to $68.76 overnight, which underpinned the loonie.
EUR/USD barely budged. It is sitting near the bottom of its overnight $1.1707-1.1724 range, awaiting today’s U.S. CPI data. German July CPI was unchanged at 0.9% m/m.
GBP/USD traded lower, falling from $1.3840 to $1.3804 on the back of broad US dollar strength. The GBP/USD technicals are bearish while prices are below $1.3940, looking for a break of $1.3790 targeting $1.3710.
USDJPY extended gains to 110.78, in tandem with US 10-year Treasury yields climbing to 1.37%.
AUD/USD and NZD/USD traded quietly and defensively in narrow ranges. Australia’s August Consumer Confidence report was -4.4 compared to 1.5% previously, due to spreading COVID-19.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians