- Canada inflation expected at 6.9% y/y in October, unchanged from September
- The Donald Trump circus returns to US presidential politics
- US dollar opens higher compared to close
USDCAD snapshot open 1.3248-52, overnight range 1.3234-1.3305, close 1.3280, WTI $87.07, Gold $1782.12
The Canadian dollar traded erratically in a chaotic session yesterday when geopolitical tensions intruded into a data driven market.
A cooler-than expected US Producer Price ex-Food and Energy index (actual 6.7% vs forecast 7.2%) knocked the US dollar for a loop and sent the Canadian dollar soaring. Traders viewed the PPI data as further evidence that the Fed would slow the pace of rate hikes and that the Fed’s peak rate was lower than previously thought.
The view was encouraged by comments from some Fed officials. Kansas City Fed President Ester George said it made sense to slow the pace of hikes. Philadelphia Fed President Patrick Harker expects the Fed to slow the pace of rate hikes in coming months. Meanwhile, his colleague Atlanta Fed President Raphael Bostic was a tad more cautious. Mr Bostic needs to see indicators of broad-based easing of inflation.
The euphoria from the PPI result was quickly forgotten following news that two Russian missiles killed two civilians inside the Polish border. That sparked fears the Russia-Ukraine war would dramatically escalate as Poland is a NATO member. Stocks plunged and the US dollar allied on safe haven demand.
The panic subsided after the missile’s origin was question. Last night President Biden said the missile was an errant Ukrainian defence missile and not fired by Russia.
Risk sentiment flipped to positive, and the US dollar retreated.
Canada October CPI is expected to rise 6.9% y/y with some speculating that the softer US inflation reports suggest the Canadian data will see a similar result. If so, USDCAD may rally on speculation the BoC may slow its pace of rate hikes. On the other hand, a hotter than expected print would see USDCAD pushing below support at 1.3200.
EURUSD climbed steadily overnight, rising from 1.0332 to 1.0438, but remains below the post-PPI peak of 1.0481.
GBPUSD traded with a bullish bias in a 1.1834-1.1940 range overnight, failing to regain yesterday’s post-PPI peak of 1.2028. UK inflation was a scorching 11.1% y/y in October (forecast 10.7%, September 10.1%), a 41-year peak. It would have bee 18.8% if the Liz Truss government did not introduce an energy price cap.
USDJPY traded in a 138.74-140.28 range and is trading at 139.50 in NY. Price action continues to be dictated by broad risk sentiment and US Treasury yields.
AUDUSD traded in a 0.6732-0.6792 range while NZDUSD firmed in a 0.6133-0.6192 band on improved risk sentiment.
US trade and retail sales data are ahead.
