- FOMC minutes were hawkish as expected
- Traders awaiting key US inflation data
- US dollar slightly weaker, remains bid
USDCAD snapshot: open 1.3795-99, overnight range 1.3792-1.3835, close 1.3817, WTI $87.56, Gold $1675.20
The Canadian dollar is trading choppily but with a downward drift. Traders are focused on external issues, particularly the outlook for US interest rates.
The minutes from the September 21 FOMC meeting, released yesterday, showed the Committee was singularly focussed on driving inflation down to the 2.0% target. Policymakers feared the cost of doing too little outweighed the cost of not doing enough. They also said they would be in no hurry to lower rates.
Fed Governor Michelle Bowman made similar comments yesterday. She warned of additional large rates hikes saying “"Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis.”
Despite both the FOMC minutes a slew of Fed officials arguing the need for “higher rates for longer,” many traders and analysts hope today’s US inflation numbers will show signs price pressures are cooling.
CPI is expected to dip to 8.1% y/y (August 8.3%) while Core-CPI (ex-food and energy) ticks higher (forecast 6.5% y/y from 6.3%).
The Canadian dollar continues to track risk sentiment as measured by S&P 500 price action and the S&P direction will be determined by today’s US inflation report.
Lower than expected results will spark a USDCAD retreat on hopes the Fed will ease the pace of rate hikes. If so, the drop may be exacerbated by stop loss selling from stale long USDCAD positions.
On the other hand, a higher-than-expected CPI reading for headline and core should lead to USDCAD breaking above 1.3860.
Canadian dollar gains are hampered by lower oil prices. WTI oil prices are on the defensive after falling from $90.00 to $86.34/b yesterday then consolidating in a $86.92-$87.99/b range overnight. Prices were depressed after OPEC and the Energy Information Administration lowered demand forecasts for 2022 and 2023. Opec said “The world economy has entered into a time of heightened uncertainty and rising challenges, amid ongoing high inflation levels, monetary tightening by major central banks, high sovereign debt levels in many regions as well as ongoing supply issues.”
EURUSD traded sideways in a 0.9687-0.9743 range. German inflation rose 10.9% y/y in September and as per the press release “increased by leaps and bounds after the 7.9% rise in August.”
GBPUSD rallied raggedly in a 1.1060-1.1162 range supported in part by a modest recovery in the UK gilt market as 10-year gilt yields fell from 4.597% yesterday to 4.30% today.
USDJPY rose to 146.90 from 146.68 with traders not seeing any sign of the Bank of Japan.
AUDUSD traded in a 0.6267-0.6298 range with traders sidelined ahead of today’s US data.
US jobless claims are expected at 225,000, a 6,000 increase from last week.