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USD / CAD - Canadian Dollar grinding higher

- US Inflation expected to have fallen in April.

- China contemplates new fiscal stimulus measures.

- US dollar opens with losses against the majors.

USDCAD: open 1.3630, overnight range 1.3624-+1.3656, close 1.3653, WTI $78.19, Gold, $2369.46.

The Canadian dollar rallied on the back of broad US dollar weakness following Tuesday’s release of US Producer Price Index (PPI) data and extended the gains overnight. At first glance, the headline PPI result should have been bullish for the US dollar. Core PPI rose 0.5% m/m in April, higher than forecast and well above the 0.1% drop in March. However, it was the downward revisions to previous reports and the decline in key components of the data, which feed into the Personal Consumption Expenditure-Price Index data (the Fed’s preferred inflation measure), that sparked the US dollar sell-off.

The US dollar dropped across the board, and the Canadian dollar went along for the ride. Canadian dollar traders are ignoring the latest slide in West Texas Intermediate (WTI) oil prices. WTI dropped from $78.75 to $77.56/barrel overnight despite the weekly American Petroleum Institute oil inventory report that showed crude stocks declining by 3.104 million barrels in the week ending May 10. It was the International Energy Agency’s downgrade of its global demand forecast for 2024 that weighed on prices. The IEA expects global demand to drop by 140,000 million barrels per day in 2024. OPEC disagrees and is forecasting an increase of 2.25 mb/d. None of it should matter as the total global daily production is 102 million barrels/day.

Traders are eagerly awaiting this morning’s US April CPI report. The consensus forecast is that prices have eased, with core-CPI expected to rise 0.3% m/m compared to 0.4% in March and rise 3.6% y/y compared to a 3.8% increase in March. Even so, they are well above the Fed’s 2.0% target and hardly a reason to celebrate.

US Retail Sales are expected to rise 0.4% in April, compared to 0.7% in March.

EURUSD traded in a 1.0813-1.0835 range due to broad US dollar weakness and better-than-expected Eurozone Industrial Production data for March. IP rose 0.6% compared to the consensus forecast for a 0.5% increase.

GBPUSD rose from 1.2582 to 1.2625 as traders dismissed dovish remarks by BoE Chief Economist Huw Pill, who yesterday said rates could be cut in the summer.

USDJPY dropped to 155.74 from 156.56 due to broad US dollar weakness in anticipation of a weak US inflation report today and because of the slightly lower US 10-year Treasury yield.

AUDUSD rallied in a 0.6622-0.6652 range with prices underpinned by the talk of new fiscal stimulus by the Chinese government.

Canada Housing starts are ahead.