The Canadian dollar is riding a see-saw. USD/CAD rose from $1.2070 to $1.2117 yesterday, then reversed the entire move overnight and in early Toronto trading. A surge in West Texas Intermediate (WTI) oil prices to $70.60 from $68.35 yesterday helped drive USD/CAD lower, as did broad U.S. dollar weakness vs the majors.
The April Bank of Canada meeting sparked the USD/CAD drop from $1.2650 to $1.2015 by the middle of May.
Today’s BoC meeting will not result in a similar move. The BoC is universally expected to leave the overnight rate unchanged at 0.25%, or change the guidance for an interest rate hike.
The BoC announced the tapering Quantitative Easing bond purchases to $3.0 billion per week at the previous meeting. Recently, a couple of strategists at Canadian banks noted that the BoC was not purchasing the full $3.0 billion, which may be a sign the BoC will announce more tapering soon.
WTI oil didn’t meet with any resistance at the $70.00/b level, and prices climbed steadily until running out of steam at $70 60/b. Traders believe demand will continue to increase as the G-7 economies begin to normalize following the pandemic. Oil prices garnered additional support as the Iran/US, and EU nuclear treaty talks appear to have stalled.
The China Purchasing Price Index leapt to 9.0% in May, from 6.8% in April, while Consumer Price Index rose 1.3% from 1.2% y/y. Those results kept the focus on Thursday’s U.S. inflation data.
The U.S. inflation report is garnering outsized attention. It is expected at 4.4% y/y compared to 4.2% last month. A higher than forecast result will reignite the debate about the U.S. Federal Reserve needing to raise interest rates sooner than forecast. Fed Chair Jerome Powell and most of his colleagues insist that inflation gains are temporary. However, some Federal Open Market Committee and Treasury Secretary Janet Yellen have speculated that a rate hike is not out of the question.
EUR/USD and GBP/USD inched higher overnight but are well within recent ranges. The European Union and U.K. data calendar was light, and traders are content to await tomorrow’s U.S. data.
AUD/USD and NZD/USD tracked broad US dollar moves. AUD/USD traders ignored the drop in Westpac Consumer Confidence as it was due to coronavirus lockdown measures in Melbourne.
There are no economic reports from the U.S. or Canada today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
