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USD / CAD - Canadian dollar fading

- Traders uninspired ahead of US inflation report, due Thursday.

- Euro area and German data undermine EURUSD.

- US dollar starts the day with gains against commodity bloc.

USDCAD: open 1.3365-69, overnight range 1.3341-1.3379, close 1.3348, WTI $72.13, Gold, $2035.62

The Canadian dollar drifted lower in an uninspired overnight session. A lack of top-tier actionable economic data from the US kept most traders sidelined as they continue to evaluate the wisdom of expecting 150 bps in Fed rate cuts in 2024. Thursday's US inflation data may provide some clarity.

The Canadian dollar isn't getting any support from oil prices. West Texas Intermediate has been stuck in a $70.00-$75.00 per barrel band since the middle of November and intraday price action has been ignored. WTI is supported by OPEC and Russian production cuts, garnering additional support after Russian oil export data showed the country was complying with its agreement to lower exports.

Elsewhere, Saudi Arabia is reportedly offering bribes to Houthi rebels to allow oil tankers to transit the Red Sea unimpeded. It smacks of desperation as the Houthis are aligned with the Kingdom’s arch-enemy, Iran.

Canadian dollar traders are also ignoring the risk that Friday’s stronger than expected Canadian employment data will force the Bank of Canada to delay cutting rates.

Asian equity markets closed with gains, led by a 1.16% rally in Japan’s Nikkei 225 index, which brought it to a thirty-four-year high. European equity indexes traded with a negative bias as are S&P 500 futures, which have lost 0.41% in early NY trading.

Fed officials sounded optimistic for lower rates but not immediately. Governor Michelle Bowman said that if inflation fell closer to the 2.0% target, it would be appropriate to cut rates. Then she said, “We are not there yet.” Atlanta Fed President Raphael Bostic repeated that he expected two rate cuts this year. The comments were not new, and the market reacted accordingly.

EURUSD traded negatively in a 1.0928-1.0966 range and is at the bottom in early NY trading. A drop in German industrial production was offset by a drop in Eurozone unemployment.

GBPUSD traded in a 1.2722-1.2765 range with price action tracking equities and broad US dollar sentiment.

USDPY dropped to 143.33 from 144.32 before rebounding to 144.03 in NY. The losses were due to Tokyo inflation data being lower than forecast but offset by the gain in the US 10-year Treasury yield to 4.04% from 4.01%.

AUDUSD drifted in a 0.6695-0.6734 band, underpinned by better than expected Retail Sales and Building Permits data.

Today’s US data includes goods and services balance of trade.