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USD / CAD - Canadian dollar probing resistance

- Month-end flows distorting markets.

- Weak Chinese PMI data boosts greenback

- US dollar opens with gains except against JPY.

USDCAD snapshot: open 1.3640-44, overnight range 1.3601-1.3650, close 1.3600, WTI $68.31, Gold $1958.58

The Canadian dollar weakened due to disappointing Chinese PMI data which fueled fears of a global economic growth slowdown. May Manufacturing PMI dropped to 48.8 from 49.2 in April while Non-Manufacturing PMI dipped to 54.5 from 56.4 in April. The results suggest China’s post-pandemic recovery has stalled.

The news crushed global equity markets which were already under pressure due to month end rebalancing flows. Australia’s ASX 200 fell 1.64% while Japan’s Nikkei 225 Index lost 1.41%. European equity indices are also faring poorly are trading negative. The German DAX is down 0.39% while the French CAC 40 lost 0.62% (as of 8: 10 am EDT). S&P 500 futures are retreating and are down 0.42%.

The Canadian dollar also suffered because of a sharp drop in oil prices. WTI oil prices fell to $67.34 from $73,70/barrel on Monday. The selling pressure stems from the unsettled US debt ceiling debate, month-end flows and aggravated by news of a fire at a Russian oil refinery.

Canada Q1 GDP is on tap. Canada’s economy is expected to have grown by 2.5% y/y. However, the details may be less impressive and point to softer domestic demand. March GDP is expected to have fallen by 0.1%.

EURUSD traded lower, falling from 1.0735 in Asia to 1.0660 at the NY open. The losses were exacerbated by weak Chinese PMI data, and by lingering fall-out from the revised US interest rate outlook. The CME Fedwatch tool probability of a 25 bp rate hike is 65% compared to unchanged earlier in the month. The single currency is also under pressure from weaker-than-expected French and Spanish inflation data. If the German data (at 8:00 am) is similar, EU rate hike bets will be trimmed and EURUSD could fall further.

GBPUSD traded negatively in a 1.2350-1.2425 range, dropping alongside the G-10 majors due to broad US dollar demand following the Chinese data.

USDJPY traded in a 139.32-140.06 range, dropping in early European trading, and then bouncing close to the top of the range when NY opened.

AUDUSD was spanked by Chinese PMI data and fell from 0.6538 to 0.6476. Lower domestic Core CPI (actual 6.5% y/y in April vs previous 6.9%) and the ongoing US debt-ceiling issue also fueled AUDUSD selling pressures.

Chicago PMI and JOLTS jobs opening reports are ahead.