- Risk sentiment turns negative following rise in US Treasury yields.
- IEA forecasting tighter oil supplies into year end.
- US dollar consolidating gains in a quiet overnight session.
USDCAD: open: 1.3456-60, overnight range: 1.3428-1.3459, close 1.3448, WTI $82.62, Gold $1918.04.
The Canadian dollar dropped sharply yesterday despite better than expected US inflation data. The Consumer Price Index (CPI) rose 3.2% (forecast 3.3% y/y),while Core-CPI dipped to 4.7% y/y from 4.8% in June.
The initial reaction saw US stock futures rise, and the US dollar sink. However, bond traders ignored the news as their focus was on the 30-year Treasury auction. It went rather poorly with the 30-year Treasury yield set at the highest level since 2011.
The results knocked stocks lower until a late day rally led to small gains at the close. The US dollar rallied across the board and the Canadian dollar was collateral damage. USDCAD rallied from 1.3375 to 1.3449 by the close, then extended the gains to 1.3458 overnight.
Oil prices suffered from the rising greenback and WTI dropped from $84.78/barrel yesterday to $82.24/b overnight before climbing to $83.30/b in NY. The International Energy Agency (IEA) is forecasting higher prices from tighter supply for the rest of this year, which is underpinning crude prices.
Traders are set to receive further inflation data today, including the release of the US Producer Price Index (forecasted at 0.2% m/m compared to June's 0.1%) and the Consumer Inflation Expectations component of the Michigan Consumer Sentiment Index.
EURUSD exhibited a lack of clear direction, fluctuating within a range of 1.0977 to 1.1002. The renewed demand for the US dollar and the existing long-EURUSD positions restricted its upside potential, although support came from slightly higher than anticipated French inflation.
GBPUSD received a modest boost from data surpassing expectations, causing it to climb from 1.2667 to 1.2723. UK Q2 GDP increased by 0.2% q/q (contrary to the forecast of 0%), Manufacturing Production grew by 2.4% m/m (forecasted at 0.2%), and Industrial Production rose by 1.8% m/m (compared to the expected 0.1%).
USDJPY rose from 144.56 to 144.89 due to higher US Treasury yields. Nevertheless, traders maintained caution as they anticipate potential Bank of Japan intervention if the rate breaks above 145.00.
AUDUSD displayed narrow trading within the range of 0.6510 to 0.6533. The soon-to-be-ex Governor Philip Lowe remarked that Australian rates are restrictive and predicted that the worst of inflation is over.
The Canadian economic data calendar remains empty for now.
