– Risk elevated due to Central Bank meetings this week.
– Canadian dollar probing strong support.
– US dollar trading with a modest bid.
USDCAD: open 1.3831, overnight range 1.3816-1.3845, close 1.3838, WTI $77.18, Gold, $2392.52.
The Canadian dollar consolidated last week’s losses near the bottom of its recent range. The currency is under pressure due to the widening of Canada and US interest rate differentials in favor of the US, sluggish Canadian economic performance compared to the US, and the Bank of Canada’s dovish interest rate outlook.
The Bank of Canada cut interest rates to 4.50% from 4.75% last week, but Governor Tiff Macklem indicated that there were more rate cuts ahead. Economists are forecasting that the BoC’s benchmark rate will be 4.0% by year-end, with a minority predicting 3.75%. In contrast, last week’s surprisingly robust US GDP growth (2.8% y/y compared to forecasts of 2.0%) muddied the US rate cut outlook, and Friday’s Core PCE-Price Index data, which was steady, reduces the urgency for the Fed to cut US rates on Thursday.
The US dollar got a bit of a risk-aversion bid after tensions rose in the Middle East.
Asian equity indexes closed higher, led by a 2.233% rally in Japan’s Topix and a 0.88% gain in Australia’s ASX 200. European bourses are posting modest gains except for the French CAC, which is unchanged. S&P 500 futures are up 0.34%. The US 10-year Treasury yield has dropped from 4.255% on Friday to 4.162% today.
Nevertheless, the Middle East tensions did not translate into higher crude prices. West Texas Intermediate (WTI) drifted down from 77.69 to 76.61 in early New York trading. Traders appear to be more concerned about slowing Chinese crude demand than possible production disruptions from the Middle East.
EURUSD is at the bottom of its overnight 1.0825-1.0870 range. Traders are extra-cautious ahead of top-tier Eurozone economic reports, which include GDP and inflation, in addition to the outcome of the Fed meeting.
GBPUSD is trading negatively in a 1.2807-1.2887 band. Prices are depressed due to concerns that the Bank of England will reduce its benchmark rate by 25 bps to 5.00% on Thursday. That risk has led to EURGBP demand, which helps to drive GBPUSD lower.
USDJPY traded in a wide 153.03-154.36 band. Economists at JPMorgan are forecasting that the Bank of Japan will raise rates by 0.15% on Wednesday. It is not the popular opinion. Prices were also pressured by the drop in the US 10-year Treasury yield from 4.255% on Friday to 4.16% today.
AUDUSD drifted in a 0.6540-0.6569 range with price action tracking broad US dollar sentiment.
The US and Canadian economic calendars are empty.
