- Core-PCE inflation expected to fall.
- Focus shifting to FOMC meeting.
- US dollar is rangebound, but CAD outperforms.
USDCAD: open 1.3447-51, overnight range 1.3443-1.3484, close 1.3477, WTI $76.70, Gold, $2023.61
The Canadian dropped to major support yesterday then managed to recoup all of its losses since Wednesday. The Bank of Canada monetary policy meeting has been forgotten as traders are firmly focused on US data and its implications for next Wednesday’s FOMC meeting.
To that end, this mornings release of the Fed-favourite Personal Consumption and Expenditures (PCE) price index is key. The consensus forecast for the December result is for a decline of 0.2% to 3.0% y/y, compared to 3.2% y/y in November. A lower reading will fan the flames for a March rate cut although yesterday’s robust Q4 GDP report suggests the Fed may be in no hurry to trim rates.
The Canadian dollar may have received a modicum of support from steady to firm oil prices but it is minimal as CAD/US interest rate differentials and divergent US and Canadian economy growth is what is driving Canadian dollar direction.
EURUSD see-sawed within the 1.0813-1.0901 range, hitting the lower end following unexpectedly low German GfK consumer confidence survey results (actual -29.7 versus the anticipated -24.5). The European Central Bank (ECB) maintained its interest rates and monetary policy, with President Christine Lagarde indicating that discussions on rate reductions are "currently premature." `
GBPUSD pair is probing the top of its 1.2675-1.2747 range, partly buoyed by the selling of EURGBP following the ECB's lack of a firm stance against expectations for a rate decrease in April. The market has factored in an 80% likelihood of a 25 basis points reduction in ECB rates, while expectations for UK rates are to stay the same.
USDJPY pair was lively in a 147.49-148.09 band. The Bank of Japan's (BoJ) meeting minutes from December 19 highlighted the necessity for ongoing discussions about the strategic timing for exiting its current monetary policy and when to implement interest rate increases. However, inflation data from Tokyo, showing a Core-CPI increase of only 1.6% against the predicted 1.9% and the previous 2.1%, could postpone any monetary policy adjustments by the BoJ.
AUDUSD pair relatively stable in the 0.6576-0.6597 range, experiencing lower-than-average trading volumes due to the closure of Australian markets in observance of Australia Day.
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