The Canadian dollar consolidated losses in subdued trading overnight. USD/CAD traded sideways in Asia, then poked its head above $1.2600 in Europe before inching back to $1.2588 in New York.
The Canadian dollar remains under pressure to the revised U.S. interest rate outlook following this week’s hotter-than-expected inflation report. The Consumer Price Inex surged 6.2% y/y in October, which raised doubts about the accuracy of the Fed’s claim that inflation gains will be transitory. That’s because inflation rose in categories other than those most impacted by the pandemic. However, other analysts caution that the CPI increase is due to supply chain bottlenecks which are temporary.
Canadian dollar traders will have inflation on their minds next Wednesday. Canadian CPI is forecast to have risen 4.5% y/y, which is well-above the Bank of Canada’s 2.0% target. Like the Fed, the BoC insists high inflation is "transitory." Nevertheless, a higher-than-expected result may give the Canadian dollar a boost as it suggests the BoC may raise rates ahead of schedule.
This week’s drop in the Canadian dollar was exacerbated when West Texas Intermediate (WTI) oil prices dropped from $84.80 on Tuesday to $79.82 overnight. The price decline was due to concerns that the Biden Administration would release oil from the Strategic Petroleum reserves to combat high prices. WTI got knocked again yesterday when the Organization of the Petroleum Exporting Countries' monthly oil report predicted 2021 crude demand would drop by 330,000/barrels/day, blaming slowing growth in China.
There was not any top-tier economic data available overnight, leaving traders to seek direction from headlines. Those headlines included rising geopolitical tensions. The EU and Poland are at odds because Belarus is helping refugees into the EU through Poland.
Another flashpoint are European Union and U.S. concerns about Russian troop buildups along the Ukraine border.
China is demonstrating anti-social behavior again, this time telling Vancouver not to create a partnership with Taiwan.
EUR/USD traded in a $1.1437-1.1455 range with traders ignoring Eurozone Industrial Production data (Actual- 0.2% m/m vs forecast -0.5%).
GBP/USD managed to climb from $1.3355 to 1.3410 due to profit-taking ahead of the weekend but renewed Brexit tensions are limiting gains.
AUD/USD and NZD/USD are largely unchanged after an uneventful overnight session.
Today’s U.S. data includes Michigan consumer Confidence and JOLTS job openings.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
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