- FX markets recovering after US CPI roils markets.
- WTI oil jumps 5.3% after US and UK forces bomb Yemen.
- US dollar catches a bid ahead on US long weekend.
USDCAD: open 1.3356-60, overnight range 1.3348-1.3402, close 1.3395 WTI $74.91, Gold, $2046.44.
The Canadian dollar whipsawed in the wake of the US inflation report yesterday. Headline CPI rose 0.3% compared to 0.1% in November, while core-CPI rose 3.9% y/y, which was higher than expected (3.8%) but below November’s 4.0% reading.
Markets did not know what to make of it. The first reaction was to buy bonds and US dollars while selling equities, which proved to be short-lived. All the moves were reversed quickly and sharply as analysts determined that the results would have little bearing on the January 31 FOMC decision.
Cleveland Fed President Loretta Mester was quick to say that the data justified delaying a March rate cut decision, saying, “I think the December CPI report just shows there is more work to do and that work is going to take restrictive monetary policy."
Risk sentiment soured overnight after Britain and the US announced joint airstrikes on targets in Yemen. The action was considered necessary to reduce the Houthis' abilities to attack shipping in the Red Sea. The Houthi response was to proclaim that all US and British interests have become legitimate targets. The risk that the Middle East conflict sucks in other nations led to gold and oil rallying.
The precious metal (XAUUSD) soared from a low of $2014.43 yesterday to $2053.38 just before NY opened.
A surge in West Texas Intermediate (WTI) prices to $75.25/b overnight from $71.45 yesterday served to help put a floor under Canadian dollar losses.
EURUSD is trading with a slight negative bias and is at the bottom of its 1.0937-1.0985 range. ECB President Christine Lagarde suggested inflation may have peaked and that rates may not need to rise any further.
GBPUSD chopped in a 1.2724 to 1.2785 range. Prices saw support from UK GDP data (actual 0.3% m/m vs. forecast 0.2%), but the gains evaporated quickly.
USDJPY is at the top of its 144.84-145.49 range but well below yesterday's post-CPI peak of 146.42. The volatility is due to US and Japan interest rate speculation.
AUDUSD bounced back from its post-CPI dip, trading tightly between 0.6679 and 0.6715. The gains were restrained, partly due to cautious sentiment around the upcoming Taiwan election and potential reactions from China.
NY is closed Monday due to the Martin Luther King Day holiday.
