- Canada CPI expected to have risen 2.5% y/y in July (June 2.7%).
- Gold surges on US rate outlook.
- US dollar reeling as dovish Fed talk heats up.
USDCAD: open 1.3615, overnight range 1.3609-1.3642, close 1.3633, WTI $73.56, Gold, $2521.55
The Canadian dollar rallied overnight caught up in a rush of widespread US dollar selling against the major G-10 currencies. The Canadian dollar has gained 2.4% since August 1, and various technical trading studies are suggesting the rally is overdone. In addition fundamental factors are also pointing to limited upside.
Canada is facing a national rail strike which is slated to begin on Thursday. The two main rail carriers, CN and CPKC (formerly CP Rail) are facing off against 10,000 Teamsters union employees. A prolonged strike would seriously damage the domestic economy and risk reigniting inflation. That’s also why a strike wouldn’t last much longer than a week before the government ordered binding arbitration.
In addition, today’s Canadian inflation report is expected to show inflation ticked down to 2.5% in July and reinforce expectations for a Bank of Canada rate cut in September. But that result is already reflected in the current exchange rate and even a small upward deviation won’t deter the BoC from acting. That suggests traders will not react to the data.
Oil prices are declining, with WTI trading between 72.96 and 73.97 overnight amid reports that Hamas and Israel might reach a ceasefire brokered by the U.S. If this occurs, concerns about potential supply disruptions from the Middle East would ease, shifting attention to the slowing demand for crude oil from China, even as OPEC increases production.
EURUSD traded stronger within a 1.1072-1.1089 range, driven by broad US dollar selling and renewed optimism for dovish signals from Fed Chair Powell. The Eurozone's HICP inflation data for July met expectations, having little impact on the market, as did the German Producer Prices data.
GBPUSD extended its rally, climbing from 1.2974 to 1.3013, with traders eyeing a potential test of the 2024 high at 1.3034. The upward movement was largely driven by US dollar weakness.
USDJPY traded in a 145.84-147.35 range during the Asian session, then eased to 146.44 by the New York open. The pair has been volatile, with ongoing speculation about carry-trade unwinding and expectations of dovish policy remarks from Powell this week impacting market sentiment.
AUDUSD edged higher, moving from 0.6714 to 0.6729, supported by overall US dollar weakness. The minutes from the Reserve Bank of Australia meeting didn’t reveal anything new, reiterating the board’s view that rates need to stay elevated for an extended period.
