- Loonie gives back post-CPI gains.
- Hawkish Fed-speak underpins greenback
- US dollar opens with gains across the board, except against AUD.
USDCAD: open 1.3672, overnight range 1.3650-1.3694, close 1.3659, WTI $81.56, Gold, $2316.48
The Canadian dollar rallied on the heels of a higher-than-expected Canadian inflation report yesterday. May CPI rose 0.6% m/m (forecast 0.3%) and 2.9% y/y (forecast 2.6%), which caught analysts and Bank of Canada officials by surprise. The BoC reduced its benchmark rate by 25 bps to 4.75% on June 5, touting “continued evidence that underlying inflation is easing.” Yesterday’s data suggests the move may have been a tad premature. One school of thought argues that the main reason domestic rates were lowered was because Governor Tiff Macklem virtually preannounced such a move early in May. Ooops.
The Canadian dollar reversed its entire post-CPI rally yesterday as FX traders turned their attention to comments from Fed Governor Michelle Bowman. She reiterated her hawkish view that “Inflation in the U.S. remains elevated, and I still see a number of upside inflation risks that affect my outlook." She confirmed that she did not forecast a rate cut in 2024, saying that she penciled rate cuts into future years due to the uncertainty of the economic outlook.
Her comments helped to boost the U.S. dollar vs. the majors and lift the 10-year Treasury yield from 4.24% yesterday to 4.286% today.
Asian equity indexes closed mixed. Australia’s ASX lost 0.711% after a robust Australian CPI report, while the falling yen lifted Japan’s Nikkei 225 index by 1.26%. European bourses are flat to slightly negative, while S&P 500 futures are also flat.
EURUSD traded in a 1.0679-1.0718 range with prices weighed down by a weak German Gfk Consumer Confidence Survey (actual -21.8, forecast -18.9). Dovish remarks by ECB policymaker Olli Rehn, who predicted two more rate cuts in 2024, did not help sentiment.
GBPUSD drifted aimlessly in a 1.2654-1.2694 band due to a lack of data. Traders are content to bide their time until Thursday’s U.S. data dump ahead of month-, quarter-, and half-year-end portfolio rebalancing flows.
USDJPY traders are taunting the Bank of Japan by driving USDJPY above 160.00. USDJPY rose from 159.62 to 160.40, which is above the level when the BoJ intervened in May. Fed Governor Michelle Bowman’s hawkish comments and the BoJ’s lack of action are driving the move.
AUDUSD rose from 0.6636 to 0.6689 after May inflation rose 4.0% rather than the 3.8% expected. The results added fuel to the interest rate debate and raised the odds that the RBA will raise rates in August.
The U.S. and Canadian economic calendars are empty.
