- Canada CPI disappoints and gives Canadian dollar a lift.
- UK inflation falls more than expected.
- US dollar mixed but lower from yesterday’s open.
USDCAD: open 1.3334-38, overnight range 1.3325-1.3354, close 1.3333, WTI $74.87, Gold, $2035.81.
The Canadian dollar is consolidating yesterday’s gains following another subdued overnight session. On Tuesday, Statistics Canada released the November inflation report. Headline CPI was unchanged at 3.1% compared to the consensus forecast for just a 2.9% y/y rise. Core-CPI was worse. It rose 3.5% compared to a 3.4% increase in October.
Traders were caught off-guard, especially those expecting the Bank of Canada to cut rates in March. The inflation results put a damper on that view and some analysts suggested that policymakers may increase rates. That speculation gave the Canadian dollar a boost, but the gains are not likely to last.
The BoC is very unlikely to resume tightening, especially as the rest of the major G-10 central banks are in easing mode. In addition, BoC policymakers would face a lot of heat from government officials who are already being blamed for adding to inflation woes by overspending and levying carbon taxes.
Asian equity indexes closed on a positive note, led by a 1.37% rally in Japan’s Nikkei 225 index. European bourses have turned cautious and are trading around flat, except for the UK FTSE 100 index, which has bounced 0.66% following a weak UK inflation report. S&P 500 futures are down 0.16%, and the US 10-year Treasury yield is 3.89%.
EUR/USD drifted lower overnight, falling from 1.0985 to 1.0939 in early New York trading. Gains were limited due to central bankers warning that rate cut speculation was overdone.
GBP/USD got spanked and dropped to 1.2648 from 1.2737 following weaker than expected inflation data for November. The headline CPI rose 3.9% year-over-year, sharply lower than the 4.4% expected and October's 4.6% result. The core CPI dropped to 5.1% year-over-year from 5.7% previously. Forget rate hikes. Traders are now pricing in 140 basis points of rate cuts in 2024, with the first cut occurring in March.
USD/JPY traded lower, in a 143.26-144.10 range. Traders are still adjusting positions after they were disappointed by the BoJ monetary policy decision, and they ignored Japanese trade data.
AUD/USD drifted in a 0.6748-0.6777 range, consolidating recent gains at levels last seen in July. Prices are getting a bit of support following the RBA monetary policy minutes that left the door open for another rate hike.
US consumer confidence data is due.
