The Canadian dollar continues to flirt with the U.S.-80-cent level, but cannot muster the power to extend gains. The currency direction continues to be dictated by broad US dollar sentiment.
That sentiment soured modestly yesterday after the US July inflation report remained steady.
Analysts were concerned that July Consumer Price Index would surpass the 5.4% y/y reading in June. It didn’t. CPI was unchanged, which some believed meant, U.S. Federal Reserve Chair Jerome Powell was right; inflation is transitory. Pundits pointed to declines in used car prices and airfares as proof. However, not all categories declined. Restaurant and bar prices rose, and after the shutdowns and restrictions during COVID, those prices won’t be going lower.
The CPI data sparked a broad US dollar sell-off, underpinned equities, and knocked US Treasury yields lower, as the result was not worse than expected.
The Canadian dollar got an added boost from oil prices. WTI jumped from $66.70 yesterday to $69.60 overnight before retreating to $68.90 in New York after the Paris-based International Energy Agency (IEA) downgraded oil demand forecasts for the balance of 2021.
The IEA said that the spread of the COVID-19 Delta-variant led to new restrictions, particularly in Asia, which will lower second-half demand by around 400,000 barrels/day, compared to its July forecast.
Chinese developments maybe adding another layer of caution to global markets. Chinese authorities are looking into medical technology companies in an effort to encourage foreign companies to produce in China. There is also talk that the People's Bank of China may be considering a cut in the benchmark Reserve Requirement Ration (RRR)
Australia has stepped up COVID-19 restrictions and lockdown measures which has weighed on the currency for the past week. Prices were also pressure by a dip in Australia Inflation expectations to 3.3% from 3.7%.
EUR/USD drifted in a $1.1734-$1.1747 range overnight and is trading at the low in New York. Eurozone Industrial Production data was a tad softer than expected, but it wasn’t a factor.
GBP/USD held on to yesterday’s post-U.S. CPI gains and traded in a $1.3852-$1.3877 range. The UK economy grew 1.0% m/m in June, beating estimates for a 0.8% increase and above the 0.6% gain in May. GBP/USD technicals are bullish above $1.3800, looking for a break above $1.3900 to target $1.4000.
U.S. Producer Price Index and weekly jobless claims are due.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
