- Canada CPI rose 2.9% y/y (forecast 3.3%)
- Minutes from Jan 31 FOMC meeting ahead.
- US dollar drifts in narrow, mixed ranges.
USDCAD: open 1.3520-24, overnight range 1.3505-1.3536, close 1.3523, WTI $76.66, Gold, $2030.08
The Canadian dollar is trading with a slight negative bias following yesterday’s inflation report. Inflation rose 2.9% y/y in January, compared to the forecast for a 3.3% increase and more importantly Core-CPI rose 2.4% compared to 2.6%. The results mean that headline inflation is inside the Bank of Canada’s mandated target range of 1-3%. The odds for a June rate cut rose to 50%.
USDCAD rallied on the news, rising from a pre-CPI level of 1.3426 to 1.3532 as traders assumed that the BoC could cut rates ahead of the Fed. Don’t expect policymakers to agree. They may express some happiness for the lower levels but they will say that the data has been volatile and that they need to see more evidence of a sustained downward trend.
That’s understandable as Governor Tiff Macklem just penned an essay in a publication called Monetary Policy Responses to the Post-Pandemic Inflation. He admitted that the BoC bungled the inflation file and made numerous forecasting errors. He won’t want to make the same mistakes again.
The FOMC minutes should not be an issue as they are very stale, especially since Fed Chair Jerome Powell essentially pre-announced that rates would remain unchanged in March.
EURUSD is steady in a 1.0790-1.0819 range, with prices continuing to dance on either side of the 100-day moving average at 1.0806. There is a dearth of Eurozone data, leaving Wall Street to determine direction, and at the moment, S&P 500 futures are down 0.23%, which has helped to knock EURUSD from its peak.
GBPUSD traded in a 1.2602-1.2637 range in a calm overnight session compared to the chop seen yesterday. Tuesday, comments from BoE Governor Bailey and Deputy Governor Ben Broadbent. Mr. Broadbent pushed back against claims that incoming data supported a rate cut.
Mr. Bailey reiterated that the BoE is now focused on how long to leave rates at current levels and not on increasing rates. A small majority of UK economists expect the first rate cut in August.
USDJPY is drifting higher in a 149.85-150.20 range. Prices continue to be supported by the 10-year Treasury yield, which is sitting at 4.26%, and by concerns that BoJ tightening will be modest. Japan's trade deficit fell sharply, which slashed the trade deficit nearly in half compared to January 2023 (actual -12 billion) thanks to exports, which surged 0.9%.
AUDUSD traded sideways in a 0.6547-0.6573 range. The quarterly wage price index rose 0.9% as expected and down from 1.3% earlier.
AUDUSD direction is tied to Wall Street in the absence of actionable US data.
