– Traders awaiting Wednesday’s FOMC meeting.
– Steady oil prices supporting Loonie.
– US dollar mixed but and locked in tight ranges.
USDCAD open: 1.3506-10, overnight range: 1.3496-1.3529, close 1.3532, WTI $90.47, Gold, $1926.93.
The Canadian dollar idled quietly in a dull overnight session as traders await inflation data for August, due tomorrow. Headline CPI is expected to jump to 3.8% y/y from 3.3% in July, with the gains due to the spike in oil prices. Economists and spin doctors will have a field day interpreting the report. Government officials will be looking for evidence that, despite the higher reading, inflation components are trending lower.
It started after the September 6 Bank of Canada meeting. The ruling Liberal/NDP coalition is getting hammered in the polls, which may have prompted Finance Minister Chrystia Freeland to chime in after the September 6 meeting, stating, “The Bank of Canada’s decision to maintain its overnight interest rate is welcome relief for Canadians. As the bank continues this work, my number one priority is to use all the tools at my disposal and to work with partners at other levels of government across Canada to ensure that interest rates can come down as soon as possible.”
However, a hotter-than-expected inflation reading may prompt Governor Tiff Macklem to demonstrate his independence from government policymakers and hike rates on October 20.
Even so, the Canadian data will quickly be forgotten following the FOMC meeting on Wednesday. The meeting comes complete with fresh economic forecasts and the dot-plot projections. The June dot-plot suggests one more rate hike in 2023 followed by 100 bps of rate cuts in 2024. A similar result will keep the greenback bid.
EURUSD remained stable, trading within a range of 1.0656-1.0678. The single currency continues to grapple with the aftereffects of last week’s dovish European Central Bank (ECB) rate hike. Its prospects are unlikely to improve as long as traders remain convinced that US interest rates will remain firm. A comment by ECB Vice President Luis de Guindos, suggesting that markets may have witnessed “the worst of inflation,”
further weighs down the EURUSD pair.
GBPUSD traded within a range of 1.2370-1.2405. Market participants have already factored in expectations of a 25-basis-point rate hike by the Bank of England on Thursday.
USDJPY displayed minimal movement, hovering between 147.56 and 147.88, as Japan observed the Respect for the Aged Day holiday.
AUDUSD lacked clear direction within a range of 0.6427-0.6449, although it received some support from stronger-than-expected Chinese economic data.
Looking ahead, today’s focus will be on the US NAHB Housing Market Index, with expectations of it remaining unchanged at 50.