- Weak GDP data slams GBPUSD
- Traders embrace talk of “US soft-landing”
- US dollar opens mixed-Commodity bloc gains
USDCAD Snapshot open 1.2756-60, overnight range 1.2742-1.2785, close 1.2762, WTI oil $94.59, Gold $1787.65
The Canadian dollar is poised to end the week positively after markets embraced the idea of a US “soft-landing.”
USDCAD traded at 1.2948 in Asia on Monday and touched support in the 1.2730 area yesterday. Prices consolidated the losses in a 1.2742-1.2785 range with the top reached in early NY trading.
Economists and analysts noted lower-than-expected US inflation data from a series of reports (consumer price index, personal consumption expenditures, and purchasing price index) and determined inflation has peaked.
Wednesday’s CPI data which showed July inflation falling to 8.5% from 9.1%, really got the ball rolling with the decline largely due to lower fuel prices. That trend is expected to continue as West Texas Intermediate (WTI) continues to retreat from its mid-June peak.
Falling inflation suggests the Fed will raise interest rates less aggressively and open the door to the first rate cut in January 2023.
Markets have embraced the “inflation peaking” story with enthusiasm. The S&P 500 index surged from its June low of 3646.00 to close at 4207.27 yesterday. The 10-year Treasury yield peaked near 3.5% in June and is trading at 2.88 in NY.
However, Fed Chair Jerome Powell and his colleagues are not nearly as enthusiastic as market participants. San Francisco Fed President said she is open to a 75 basis point rate hike in September and said she didn’t see the Fed raising rates then cutting them.
Minneapolis Fed President is still worried about a recession and said he “hasn’t seen anything ”to change the view that the Fed needs to raise rates.
GBPUSD was the main FX story overnight. GBPUSD plummeted to 1.2118 from 1.2215 after Q2 GDP fell 0.1% q/q and the National Institute of Economic and Social Research (Niesr) said the economy was in a recession. Even so, the result was a tick better than expected.
EURUSD is trading at the bottom of its 1.0278-1.0327 range. The German Economics Minister said the second half outlook was “considerably worse” because of energy issues and supply-chain woes. Better than expected Eurozone Industrial Production data did not impact the currency.
AUDUSD and NZDUSD rallied in Asia after better than expected economic data, but the gains faded in early NY trading.
The Michigan Consumer Sentiment Index (forecast 52.5 vs 51.5 in July) is due today.
