- European PMI data weaker than expected.
- Traders are cautious ahead of FOMC meeting on Wednesday.
- US dollar opens firm against EUR and GBP and weaker vs CAD.
USDCAD: overnight range 1.3184-1.3227, close 1.3224, WTI 77.50 Gold $1965.10
The Canadian dollar traded erratically inside a fairly narrow range, with price action tracking broad US dollar moves against other major currencies overnight, which wasn't much different from last week's price action.
The Canadian dollar is alternating between strength and weakness due to constantly shifting sentiment towards the outlook for US interest rates, which drives oil and stock market prices. Additionally, there is a lingering fear that the Bank of Canada will hike rates again in September.
The Bank of Canada's forward guidance has been extremely unreliable under Governor Tiff Macklem's watch. The BoC turned cautious in January and announced it was putting further rate hikes on hold based on their outlook for economic growth, inflation, and employment. However, those forecasts proved erroneous, and they hiked rates in June and July.
The Canadian dollar finished last week on a soft note, and traders are biding their time until Wednesday's Federal Open Market Committee monetary policy decision.
The Fed is expected to hike interest rates by 25 bps on Wednesday, and many economists believe it will be the last hike for this cycle. The jobs market is still tight, but inflation is slowing thanks to the previous 525 bps in rate increases.
The European Central Bank (ECB) meeting is another market risk, although many believe the risk is minimal. That's because ECB President Christine Lagarde essentially pre-announced a July rate hike at its previous meeting, and there hasn't been any data that would change her mind.
Oil prices are helping to slow Canadian dollar losses. West Texas Intermediate (WTI) added to Friday's gains and rose from $76.47 per barrel to $77.80/b.
EURUSD traded in a 1.1067-1.1146 range overnight, with the bottom occurring in the wake of weaker-than-expected Eurozone July preliminary Manufacturing PMI data (actual 42.7 vs. 43.5). The ECB is expected to hike rates by 25 bps on Thursday.
GBPUSD traded in a 1.2809-1.2982 range. Prices remain on the defensive after last week's UK data forced traders to downgrade rate hike risks, which were reinforced after UK July preliminary Manufacturing PMI fell to 45 from 46.5 in June.
USDJPY is consolidating Friday's gains in a 140.85-141.80 range. Prices continue to be supported by dovish expectations for the BoJ meeting this week.
AUDUSD rallied from 0.6716-0.6754 due to positive sentiment around China's Politburo meetings and steady Manufacturing PMI data.
The Chicago Fed National Activity index is ahead.
