- Weaker oil prices weigh on Loonie
- Chinese yuan tumbles and supports board US dollar demand
- US dollar firm opens mixed
USDCAD snapshot open 1.3732-36, overnight range 1.3681-1.3746, close 1.3706, WTI $83.33, Gold $1640.24
The Canadian dollar is trading defensively in an uninspiring FX market. Some traders are re-embracing the idea that the Fed plans to discuss slowing the pace of rate hikes and when to pause them altogether when the FOMC meets on November 2.
Last week, Minneapolis Fed President Neal Kashkari started the pause chatter when he said, “My best guess right now is yes, do I think inflation is going to level out over the next few months, the services, the core inflation, and then that would position us some time next year to potentially pause.”
His remarks got added traction after Wall Street Journal reporter Nick Timiraos quoted Fed Governor Christopher Wallace who said, “We will have a very thoughtful discussion about the pace of tightening at our next meeting.”
However, the most influential Fed members, Chair Jerome Powell, Vice Chair Lael Brainard, and New York Fed President John Williams have not even hinted at a pending pause.
Asia traders were spooked after the Peoples Bank of China’s (PBoC) daily yuan fixing was at its lowest level since 2008. Chinese authorities appear to have stopped fighting the weak yuan trend, in part because the weakness is due to divergent interest rate policies between the FED and the PboC.
Canadian dollar traders are looking ahead to Wednesday’s Bank of Canada (BoC) monetary policy meeting with a 75 bp rate hike already priced in. Some analysts believe it will be a “dovish hike,” meaning policymakers spin a “data dependent” narrative.
If so, it risks making BoC officials look foolish. The September monetary policy statement said “In Canada, CPI inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices. However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services. The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July.”
On September 9, Deputy Governor Carolyn Rogers said “Given the outlook for inflation, we continue to judge that the policy interest rate will need to rise further. As the effects of tighter monetary policy work through the economy, we will assess how much higher interest rates need to go to return inflation to target.”
Her comments and the BoC statement do not suggest a dovish hike tomorrow.
The Canadian economic calendar is empty.
