- Bank of Canada delivered a dovish hold.
- Oil prices fall despite ceasefire violations
- US dollar catches a bid, CAD underperforms.
USDCAD open: 1.3927, overnight range 1.3924-1.3957, close 1.3948, WTI 87.99, Gold 4,169.16
The Canadian dollar sank after Trump announced that he would not renew CUSMA.
The move surprised nobody.
India's High Commissioner to Canada noted that India would gladly purchase more Canadian oil and natural gas. Unfortunately, years of regulatory hurdles, cancelled projects and insufficient export infrastructure mean Canada remains unable to fully capitalize on that demand.
The Bank of Canada left interest rates unchanged, as widely expected. While the accompanying statement leaned dovish, citing soft economic activity, Governor Macklem introduced a degree of two-way risk for the Canadian dollar by warning that an inflation shock could force policymakers to deliver back-to-back rate increases.
WTI crude remains near the bottom of its 89.79-93.63 range after both Iran and the United States stopped short of escalating their conflict following reciprocal strikes. Additional pressure came from reports that China reduced oil imports by 29% in May, helping to cap gains in crude prices.
Today marks the official start of the FIFA World Cup and Friday’s SpaceX IPO drawing overwhelming demand. Both events are distracting traders. The US and Iran traded missiles again overnight, but talks are still ongoing.
Inflation pressures in the United States continue to simmer. Yesterday, headline CPI rose 4.2% y/y in May from 3.8% in April. Today, PPI is in the spotlight. Core PPI, excluding food and energy, is expected to increase to 5.4% y/y from 5.2%, a sign that underlying price pressures remain stubbornly elevated. Weekly jobless claims are forecast to fall by 6,000 to 219,000.
Asian equities closed in the red. Japan's Topix dropped 0.46%, the Hong Kong Hang Seng Index fell 0.65%, while the Australian ASX 200 closed down 0.23%.
As of 7:25 am, in Europe, the French CAC 40, has gained 0.84%%, the German DAX has risen by 0.17% and the UK FTSE 100 has climbed 0.75%. S&P 500 futures are up 0.60%, the 10-year Treasury yield is 4.525%, and the DXY is 100.06,
EURUSD traded in a 1.1526-1.1557 range ahead of today’s ECB monetary policy meeting, where a 25 bp rate hike and a hawkish bias to the outlook are baked into the price. Arguably, that means that any EURUSD gains on the news may be short-lived.
GBPUSD bounced inside a 1.3350-1.3392 band and is trading at session lows in early NY due to Trump’s latest Iran aggression. The BoE is expected to raise rates in September, which is helping to provide a floor for the currency, while gains are capped by concerns of a negative impact on growth from higher oil prices and disrupted supply chains.
USDJPY idled in a 160.43-160.59 band. Prices were underpinned by steady to firm US Treasury yields and by poor risk sentiment due to Iran and US tensions. However, fears of FX intervention and expectations for the BoJ to hike rates by 25 bps to 1.0% next week are limiting topside moves. BoJ Governor Kazuo Ueda has been hospitalized and is expected to stay for two weeks.
AUDUSD traded lower in a 0.6988-0.7013 range due to steady US dollar demand and diminished risk sentiment from renewed US/Iran hostilities and wobbly equity markets.
