- WTI oil gains as demand expected to outstrip supply
- Talk of September US rate hike pause undermines greenback
- US dollar opens on the defensive
USDCAD Snapshot: open 1.2680-84, overnight range 1.2684-1.2728, close 1.2721, WTI open $115.61, Gold open $1,858.45
The Canadian dollar inched higher again overnight, getting a lift from broad-based US dollar selling and firmer oil prices.
Global risk sentiment took a turn for the better Friday, when US Core PCE Price index data was released. The PCE report is said to be the Fed’s preferred measure of inflation and the April data was better than it was in May. The results led to speculation that inflation may have peaked and supported Cleveland Fed President Raphael Bostic’s forecast that the FOMC will pause hiking rates at the September meeting.
The view is a bit of a stretch considering that even after two more 0.50 basis point rate increases, the Fed funds rate will only be where it was in 2019 and pent-up demand, labour shortages, and supply chain issues were not an issue.
The Bank of Canada will match Fed rate hikes with a 0.50 increase expected on Wednesday. The Canadian dollar may get an added lift if the statement is hawkish. Inflation is hotter than what policymakers expected in the April Monetary Policy Report (MPR) and GDP is growing faster than expected.
Oil prices are ticking higher. West Texas Intermediate climbed to $116.36 overnight, after closing at $115.08/b. The gains are exacerbated by low US crude inventories just as the demand rises for the summer driving season. Traders are also concerned by EU efforts to impose a total ban on Russian oil imports. Opec production continues to fall below quota levels, so the planned June 1 production increase is an increase only on paper.
USDCAD is trading with a negative bias after falling below key support levels, breaking the April uptrend line, and breaching the 100-day moving average. A decisive move below 1.2640 targets 1.2460.
EURUSD inched higher overnight, rising from 1.0737 to 1.0769. Prices are supported by the shift in risk sentiment as China loosens Covid restrictions.
GBPUSD traded choppily in a 1.2618-56 range. Support from last week's fiscal stimulus announcement is fading ongoing recession and renewed Brexit issues are capping gains.
AUDUSD and NZDUSD were underpinned by Chinese developments improving risk sentiment. AUDUSD rallied from 0.7155 to 0.7192 with traders looking ahead to Wednesday’s Q1 GDP data.
The US is closed for Memorial Day which will suck the life out of trading today.
