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USD / CAD - Canadian dollar grinding out gains.

- Bank of Japan could tweak monetary policy tonight.

- German Ifo data weaker than expected.

- US dollar claws back some losses on poor risk sentiment.

USDCAD: open 1.3380-84, overnight range 1.3366-1.3389, close 1.3380, WTI $71.33, Gold, $2019.28.

The Canadian dollar is starting the last full trading week of 2023 right where it closed on Friday. The price action was muted in Asia and Europe, despite a downgrade in risk sentiment due to fresh geopolitical tensions.

Yemen’s Houthi rebels have disrupted shipping in the Red Sea after using drones to attack cargo ships and oil tankers. That has forced UK and US navy ships to intervene and shoot down the drones. The attacks have given oil prices a bit of a boost. However, gains may be limited after Goldman Sachs cut its oil price forecast for 2024 by $10.00/barrel.

West Texas Intermediate traded with a bit of a bid in a $70.98-$72.65/barrel range but gains were limited due to fears of oil supply outstripping demand for the next few months. China’s economic growth is sluggish and that is also depressing crude demand.

Bank of Canada Governor Tiff Macklem did his best to dampen enthusiasm for Canadian interest rate cuts in a speech on Friday. It didn’t work. The Bank of Canada’s inflation forecasting has been abysmal. Policymakers did not understand why inflation was below target prior to the pandemic and insisted that rapidly rising prices in 2021 were “transient.” On Friday, Mr. Macklem claimed, “I know it is tempting to rush ahead to that discussion. But it’s still too early to consider cutting our policy rate.”

FX traders ignored his comments and justifiably so. USDCAD moves are largely determined by broad US dollar sentiment and the outlook for US interest rates. The BoC will follow the Fed’s lead so BoC comments are considered “noise” and of little value.

EURUSD traded in a 1.07892-1.0930 range after German Ifo Survey results were weaker than expected and dovish comments by ECB officials.
GBPUSD chopped about in a 1.2645-1.2705 range ahead of key inflation and retail price data due Wednesday.

USDJPY is trading nervously in a 142.07-142.90 band. Prices are underpinned by expectations that the Bank of Japan will leave monetary policy unchanged tomorrow.

AUDUSD traded quietly but with a bit of a bid in a 0.6693-0.6736 range although gains were capped by a bout of negative risk sentiment.
Canada new house prices data is on tap.