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USD / CAD - Canadian Dollar gets a boost

- US markets closed

- UK inflation hits target but data mixed.

- US dollar trading lower after quiet overnight session.

USDCAD: open 1.3717, overnight range 1.3707-1.3727, close 1.3719, WTI $80.60, Gold, $2328.07

The Canadian dollar caught an updraft yesterday after softer than expected US retail sales data renewed hopes for an earlier than expected Fed rate cut. Retail sales rose just 0.1% and the results from the previous month were revised lower. Bond traders bought bonds and drove the US 10-year Treasury yield down to 4.219% from 4.292% at the start of the day.

The bond traders were encouraged by some dovish comments from Fed officials include Governor Adriana Kugler who suggested that an interest rate cut was likely. She said, “I believe economic conditions are moving in the right direction. If the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year.” She didn’t say anything about September but the CME Fedwatch tool projects a 66% chance of a rate cut in that month.

The Bank of Canada cut its benchmark rate by 25 bps on June 5, and the Summary of Deliberations (SoD) from that meeting are due today. The monetary policy statement noted that “Governing Council agreed that monetary policy no longer needs to be as restrictive” and that “recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.” Traders and analysts will be parsing todays SoD for additional insight into the interest rate outlook.

It is likely to be a very quiet trading day as US markets are closed for Juneteenth Day, which also limited overnight trading activity.

EURUSD crawled higher in a 1.0724-1.0747 range. FX action has been understated due to the US holiday while the looming French election suggests limited upside.

GBPUSD rallied from 1.2697 in Asia to 1.2738 in early NY. UK May CPI hit the Bank of England target of 2.0% y/y but the report was tarnished by a rise in the services inflation component which is 5.7% and higher than the BoE forecast in May. ING economists suggest that the results almost guarantee that the BoE will leave rates unchanged tomorrow.

USDJPY traded sideways in a 157.60-157.93 range. Lingering demand from the FOMC dot-plot projections of just one rate cut in 2024 was offset by yesterday’s soft US retail sales data and the steep drop in the US 10-year Treasury yield. Japan’s trade data was mixed. Exports grew 13.5% y/y, the fastest pace since Q4 2022, thanks to the weak yen. Imports rose 9.5% y/y compared to 8.3% previously.

AUDUSD is near the top of its 0.6654-0.6676 range supported by yesterday’s soft US retail sales data and the modestly hawkish comments from the RBA meeting.