- Canada inflation expected to dip to 6.8% from 7.0% in September
- Hawkish Fed-speak, high UK and EU inflation support US dollar
- US dollar opened modestly lower but rallied in early NY trading
USDCAD snapshot: open 1.3726-30, overnight range 1.3721-1.3783, close 1.3733, WTI $83.80, Gold $1641.75
The Canadian dollar traded defensively overnight and an early NY attempt to rally failed miserably. USDCAD dropped from 1.3783 to 1.3721 in Europe, then retraced the entire move after NY opened.
The catalyst was a modest rise in the US 10-year yield which flipped the S&P 500 futures from a 0.75% gain to a 0.27% loss.
Canadian dollar traders are cautiously awaiting today’s inflation report from Statistics Canada. September CPI is expected to have ticked down to 6.8% y/y from 7.7% in August. More importantly, Core-CPI is forecast at 5.6% from 5.8%. Nevertheless, the results will not derail the Bank of Canada from raising rates 75 bps on October 26.
BoC Governor Tiff Macklem is concerned that Canadians higher inflation expectations will become entrenched and is motivated to bring inflation down to the 2.0% target.
The Canadian dollar is not getting much, if any, support from oil prices WTI oil traded in a $82.63-$84.17/b range overnight. Prices are depressed as fears of slowing growth in China will offset Opec production cuts. News that President Biden plans to release 15 million barrels of crude from the Strategic Petroleum Reserve trumped the API report showing crude inventories fell by 1.27 million barrels last week.
Fed officials were on the rubber-chicken circuit hammering away at any lingering notions about a “Fed Pivot.” Cleveland Fed President Neal Kashkari said as much when he claimed he wasn’t ready to declare a pause in rates hikes. He said he could see US rates getting to the mid-4% area next year.
EURUSD is at the bottom of its 0.9761-0.9872 rang. European Union inflation was 9.9% y/y compared to 10.0% in August.
GBPUSD traded negatively in a 1.1247-1.1357 range after the euphoria from the budget U-turn fades. The BoE confirmed gilt sales would start November 1, refuting the FT story yesterday. UK CPI was 10.1% y/y in September compared to 9.9% y/y in August
USDJPY climbed to 149.63 from 149.11 as traders ignored warnings about intervention from the Finance Minister Shunichi Suzuki and BoJ board member Seiji Adachi.
AUDUSD traded defensively falling from 0.6324 to 0.6276.
US Building and Housing Starts data are ahead.
