- Canada CPI expected to fall to 3.0% y/y from 3.4% in May.
- US Retail Sales expected to rise 0.5% m/m in June.
- US dollar trades narrowly overnight ahead of US Retail Sales data.
USDCAD: open 1.3192-96, overnight range 1.3187-1.3211, close 1.3200, WTI $74.72, Gold $1963.45
The Canadian dollar remained quiet in an uneventful market overnight, and it wasn't the only currency experiencing limited movement. All major G-10 currency pairs traded within narrow ranges.
Today, Canadian dollar traders are closely focused on the domestic inflation report. It is expected that Canada's CPI in June rose by just 3.0% year-on-year (y/y), compared to the 3.4% recorded in May. Core-CPI gains are also anticipated to have slowed to 3.5% from 3.7%.
The decline in inflation shouldn't come as a surprise to BoC policymakers. Governor Tiff Macklem predicted a 3.0% inflation reading for the summer a couple of months ago. If his forecast proves accurate, it would be one of the few times he has been right on target.
It's worth noting that the 3.0% inflation rate aligns with the upper limit of the BoC's mandated 1-3% inflation target band. This suggests that the 25 basis points (bp) rate increase implemented last week may have been unnecessary.
The impact of the inflation data on USDCAD prices is expected to be brief, mainly because the Bank of Canada has already raised rates. By the time the September 6 monetary policy meeting takes place, this data will likely be long forgotten.
The driving force behind global foreign exchange (FX) trading is the outlook for US interest rates. Today's US data release may offer some additional clarity. It is anticipated that US Retail Sales in June will show a 0.5% month-on-month (m/m) increase (compared to 0.3% in May), with the ex-autos component forecasted to rise 0.3% (compared to 0.1% in May). Additionally, other data to be released includes Capacity Utilization, Industrial Production, Business Inventories, and the NAHB Housing Market Index.
Nevertheless, today's data is unlikely to deter the Federal Reserve from raising interest rates by 25 basis points on July 25.
EURUSD exhibited a bullish bias within a range of 1.1229-1.1275, as prices received an extra boost from the drop in US Treasury yields.
Eurozone HICP data, to be released on Thursday, will be a determining factor for whether EURUSD breaks above 1.1300 or retests 1.1150.
GBPUSD traded sideways, with a slight upward movement, within a range of 1.3069-1.3109. Traders are exercising caution ahead of Wednesday's inflation data, with CPI expected to decrease to 8.2% from 8.7% y/y, while Core-CPI is predicted to remain unchanged at 7.1% y/y.
USDJPY nearly completely reversed its movement from yesterday, dropping from 138.92 to 138.10. This decline coincided with the US 10-year Treasury yield falling to 3.764% today, down from 3.813% at the close of the previous day.
AUDUSD experienced choppy trading within a range of 0.6807-0.6836 following the release of the minutes from the July 4 RBA monetary policy meeting, which indicated policymakers' uncertainty regarding the need for another rate increase in July. Thursday's employment data may hold the key to market direction.
