The Canadian dollar churned yesterday, just before and immediately after the U.S. May inflation data was released. USD/CAD spiked to $1.2123 in a knee-jerk reaction to the Consumer Price Index surging 5.0% y/y, then plunged to $1.2068 after the details suggested the inflation gains were due to post-pandemic reopening pressures, which are not sustainable.
Bank of Canada Deputy Governor Timothy Lane’ speech did not have any impact on the currency. Lane reiterated comments from Wednesday’s monetary policy statement. He said the economy was growing as expected and wasn’t concerned about inflation, even though it was over 3.0% in April. Instead, the BoC is concerned about labour market pressures increasing slack in the economy.
The Canadian dollar continues to be underpinned by oil prices, a key reason why the loonie has outperformed against the Australian and New Zealand dollars. West Texas Intermediate, the North American benchmark, touched $70.77 in early New York trading after the International Energy Agency (IEA) released an upbeat June report.
The IEA forecasts that “global oil demand is set to return to pre-pandemic levels by the end of 2022, rising 5.4 mb/d in 2021 and a further 3.1 mb/d next year.”
WTI prices experienced a nasty reaction to a misleading headline yesterday. WTI prices plunged to $68.98/barrel from $70.52 following a headline that the US removed sanctions on Iran. However, WTI recouped the entire move shortly afterwards when it became evident the removal of sanctions pertained to Iranian individuals and not the country.
The European Central Bank (ECB) meeting was disappointing for those expecting a change in the size of PEPP purchases. Some analysts expected that recent better than expected economic data would force the European Central Bank to reduce the amount of Quantitative Easing purchases. It didn’t happen. The ECB was its usual dovish self.
EUR/USD rejected attempts to rally above $1.2200, and prices dropped below the overnight low of $1.2167 to $1.2136 in New York. A decisive break below $1.2120 would extend losses to $1.2040.
GBP/USD is consolidating near the bottom of its overnight $1.4143-$1.4184range. U.S. Gross Domestic Product rose 2.3% in May, from 2.1% in April, but growth remains below pre-pandemic levels.
USD/JPY is hovering around 109.50, despite yesterday’s steep plunge in U.S. one-year Treasury yields from 1.50% to 1.43%.
U.S. Michigan Consumer Sentiment is the data highlight of the day. The FX focus shifts to next weeks Federal Open Market Committee meeting.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians