- Canada July inflation data on tap
- China cuts 1-year MLF due to weakening economy.
- US dollar climbs on renewed risk aversion.
USDCAD: open: 1.3484-88, overnight range: 1.3440-1.3498, close 1.3460, WTI $81.88, Gold $1904.52.
The Canadian dollar is struggling. Fresh geopolitical woes, combined with the rising risk of another global economic slowdown and the prospect of higher interest rates, have led to broad-based US dollar demand, which negatively impacted the Canadian dollar.
USDCAD has been grinding higher since the beginning of the month, rising from 1.3180 and testing resistance at 1.3500 on August 8. The topside is being tested again today after concerns about China's post-pandemic recovery were underscored again when the People's Bank of China (PBoC) surprised markets by cutting the 1-year Medium Term Loan Facility (MLF) by 15 basis points to 2.50%.
The highly anticipated Chinese economic rebound has failed to materialize. The economy is struggling so badly that authorities decided not to report youth unemployment statistics. The rationale is that the methodology needs to be updated. However, others believe they want to hide poor economic performance from potential foreign investors.
Russia’s economy is also struggling, thanks to the cost of the Ukraine invasion and the impact of G-20 sanctions. The Russian ruble plunged over 23% since January 1, and today, the central bank was forced to jack up interest rates to 12.0% from 8.5%.
The US dollar is also supported ahead of today’s US Retail Sales data. A stronger than expected result (forecast 0.4% vs. 0.2% m/m) would give the Fed more ammunition to justify a rate hike in September.
EURUSD managed to eke out a marginal gain during the overnight session, rising from 1.0901 to 1.0944. The German and Eurozone ZEW economic sentiment survey indicated that the majority of respondents do not foresee any imminent interest rate hikes in either the Eurozone or the US.
GBPUSD climbed from 1.2676 to 1.2730 in response to the employment report which highlighted a noteworthy increase in average hourly earnings, excluding bonuses (actual 7.8% 3 m/y/y, previous 7.3%). The results raised the odds for a BoE rate hike next month.
USDJPY rose from 145.33 to 145.86 due to higher US Treasury yields. Traders mostly ignored the better than expected Q2 GDP (actual 6.0% vs. 3.7% previously).
AUDUSD traded in a 0.6463-0.6522 range, with prices weighed down by fears of higher US rates and slowing global growth.
