- Loonie consolidating losses following soft inflation data.
- FOMC minutes from May 1 meeting due today.
- US dollar opens on a mixed note-NZD outperforms
USDCAD: open 1.3657, overnight range 1.3624-1.3669, close 1.3655, WTI $78.04, Gold, $2417.44.
The Canadian dollar sank in the wake of the tamer-than-expected Canadian inflation report yesterday and continued to trade defensively overnight. Headline Canadian CPI rose 2.7% y/y as expected but below the 2.9% level seen in March and rose 0.5% m/m compared to 0.6% previously.
However, it was the more important Bank of Canada inflation measures that got the ball rolling. CPI trim fell to 2.9% from 3.2% while CPI median dropped to 2.6% from 2.9%. BoC Governor Tiff Macklem said he wanted to see a sustained downward trend in inflation, and yesterday’s numbers were the fourth drop in a row. The results cleared the way for a June rate cut.
Meanwhile, another flock of Fed officials were squawking about monetary policy, and all of them argued for rates to remain at current levels for longer than previously thought. The divergent rate views between the BoC and the Fed led to wider CAD/US 10-year yield interest rate differentials, which weighed on the Canadian dollar.
EURUSD is trading cautiously within a 1.0839-1.0864 range, impacted by EURGBP selling and negative sentiment stemming from China’s proposed tariffs on imported cars with large engines. Mercedes and BMW are the most affected, in response to EU plans to impose tariffs on Chinese electric vehicles.
GBPUSD surged within a 1.2705-1.2763 range, supported by higher-than-expected UK Services inflation data, reducing the likelihood of the Bank of England cutting rates in June. Services inflation was 5.9% (forecast 5.4%) and exceeded the BoE forecast of 5.5%. Not all news was negative; headline CPI rose 2.3% y/y compared to 3.2% in March, slightly above the 2.1% expected. The intraday GBPUSD technicals are bullish, anticipating further gains to 1.2810 while above 1.2705.
USDJPY edged higher within a 156.12-156.52 range, partly driven by the modest increase in the US 10-year Treasury yield, now at 4.437%. Mixed Japanese economic data and 10-year JGB yields reaching 1.0% limited gains. Rising bond yields suggest that the BoJ may raise interest rates, with a July hike probability around 60%.
AUDUSD traded steadily within a 0.6653-0.6686 range. AUDUSD is supported by a strong uptrend channel from April 19, remaining intact as long as prices are between 0.6630 and 0.6750.
There are no US or Canadian economic reports of note today.
