- Core-PCE expected to rise 0.4% m/m (previous 0.2%)
- Canada GDP expected to have risen 0.2% m/m in December.
- US dollar trades sideways ahead of key data.
USDCAD: open 1.3577-81, overnight range 1.3570-1.3592, close 1.3577, WTI $77.98, Gold, $2027.21
The Canadian dollar is not happy about having an extra day in February, as it has extended its recent losing streak by a day. The currency did not get any help from West Texas Intermediate (WTI) oil prices, which retested its February peak level.
The Canadian economy is expected to have grown by 0.2% y/y and by 0.6% q/q. Stronger than expected results, combined with technical resistance in the 1.3620-30 level, should slow a rally. However, the reality is that the outlook for US rates is dictating USDCAD direction, and that reality will be refreshed today after the release of the Fed favorite Core-PCE data.
Core PCE data is expected to be a tad hotter than it was in December (forecast 0.4% vs. 0.2% m/m in December). If so, it will be more good news for US dollar bulls and validate the FOMC’s cautious approach to easing monetary policy. If the weekly jobless claims report is stronger than expected (released at the same time as PCE), it would exacerbate a post-PCE rally.
Nevertheless, the news will not likely alter the FOMC's view of just three rate cuts in 2024. NY Fed President John Williams said as much yesterday, "Three interest rate cuts in 2024 is reasonable."
EURUSD seesawed in a 1.0826-1.0855 range. German Retail Sales fell 0.4% m/m in January (forecast 0.5% m/m), while unemployment rose to 5.9% from 5.8% y/y. French inflation was a little warmer, while Spanish inflation cooled somewhat. Traders ultimately decided that the upcoming US data was far more important.
GBPUSD traded quietly in a 1.2652-1.2675 range. BoE policymaker Catherine Mann appears to be blaming consumers for the slow decline in inflation. She said, "There is not a lot of consumer discipline on a large enough fraction of categories of services to represent active deceleration in services price inflation."
USDJPY dropped from 150.79 to 149.62 after BoJ board member Hajime Takata renewed rate hike risks. He said, "There are uncertainties for Japan’s economy, but my view is that the price target is finally coming into sight" and is "at a juncture for a shift in the entrenched belief that wages and inflation won’t rise." Prices have since rebounded to 150.04 ahead of today's US data.
AUDUSD is near the bottom of its 0.6491-0.6522 range, with Wednesday's inflation data still weighing on prices. The lower-than-expected result led to a September rate cut being fully priced in.
