- US Treasury yields testing 4.50% area.
- Soft German data weighs on EURUSD.
- US dollar grinding out gains.
USDCAD: open 1.3466-70, overnight range: 1.3470-1.3491, close 1.3482, WTI $90.32, Gold, $1922.87.
The Canadian dollar is starting the week on a quiet note after trading in a narrow range overnight. The Canadian dollar is underpinned by oil prices and the risk of another Bank of Canada rate hike, while the outlook for US rates and weak equity markets provides some support.
USDCAD sank to 1.3385 last Tuesday when Canadian inflation data showed CPI rose more than expected in August, rising to 4.0% y/y from 3.3% in July. Trends in core inflation were higher as well. Traders responded by lifting the odds for an October 20 interest rate hike to 50%. Those odds cooled slightly on Friday when July Retail sales rose less than expected, which suggested the impact of higher interest rates was dampening consumer spending.
The Canadian dollar is also supported by speculation of sharply higher oil prices. A JPMorgan oil analyst predicted that the lack of investment in new oil production, combined with the OPEC production cuts, would drive WTI to $150.00/barrel.
The Canadian interest rate outlook was put on the back burner Wednesday after the Federal Open Market Committee meeting. The Fed left rates unchanged, as expected, but the dot-plot projections indicated one more rate increase in 2023 and no rate cuts until 2025. Fed Chair Jerome Powell went to great lengths to explain that the outlook would change depending on incoming data.
Bond traders were not amused, and the US 10-year Treasury yield closed at 4.44% on Friday, then climbed to 4.495% in NY today.
EURUSD traded lower in a 1.0623-1.0655 band, with prices weighed down after the German Ifo Business Climate index ticked down to 85.7 from 85.8 in August.
GBPUSD is near the bottom of its 1.2212-1.2265 band. The currency pair is still licking its wounds after the Bank of England left rates unchanged last week and by disappointing Services PMI (actual 47.2 vs. 49.5 previously).
USDJPY drifted in a 148.25-148.65 range. Fears of Bank of Japan FX intervention capped gains, while higher US Treasury yields limited the downside.
AUDUSD traded in a 0.64132-0.6439 band and was at the mercy of the prevailing US dollar sentiment.
The US economic calendar is devoid of top-tier data.
