– US Retail Sales, PPI, Fed-speak will set the trading tone today.
– Biden/Xi Jinping meeting may be a distraction.
– US dollar consolidating yesterday’s losses.
USDCAD: open 1.3689-93, overnight range 1.3677-1.3710, close 1.3694, WTI $77.83, Gold, $1973.28
The Canadian dollar rallied like Rocky Balboa in the last round. Unfortunately, its gains had zero to do with domestic influences but relied solely on broad US dollar sentiment, and that sentiment was negative.
The greenback had been trading with a cautiously bid tone following recent comments by Fed Chair Jerome Powell. He implied that he was in no hurry to reduce interest rates because inflation was still well above target, and the risks to the FOMC outlook were skewed to the upside.
However, yesterday’s headline and core CPI numbers were lower than expected, and markets decided the drop was enough to get Powell into rate-cutting mode. October CPI rose 3.2% y/y (forecast 3.3%, previous 3.7%) while Core-CPI rose 4.0% (forecast 4.1% y/y).
Bond traders bought everything they could, and the US 10-year Treasury yield plunged from 4.63% to 4.41% by the end of the day. Stocks soared, with the S&P 500 rising 1.91% and the Dow Jones Industrial Average gaining 1.43%.
The US dollar plunged, with the US dollar index (DXY) free-falling from 105.62 in Europe to 103.86 yesterday before consolidating in a 103.90-104.18 range ahead of today’s US Retail Sales Data.
Analysts are forecasting a 0.3% m/m decline in Retail Sales in October due to weaker auto sales. Weak numbers help reinforce the belief that the US economy is slowing, which is another reason for the Fed to refrain from raising interest rates.
EURUSD hung on to yesterday’s gains and traded in a 1.044-1.0884 range overnight. Euro area Industrial production fell 1.1% m/m and 6.9% y/y, which helped to cap gains ahead of the US data.
GBPUSD is near the bottom of its overnight 1.2454-1.2502 range mainly due to profit-taking. Price got a bit of support after UK Inflation rose less than expected (actual 4.6% y/y vs 6.7% in September).
USDJPY fell with the drop in Treasury yields and consolidated losses in a 150.28-150.80 band. Japanese GDP data was weaker than expected (Q3 -2.1% y/y vs forecast -0.6%), which also weighed on prices.
AUDUSD is at the top of its 0.6483-0.6522 overnight range due to the improved risk sentiment following the US data and better than expected Chinese Retail Sales numbers.
Today’s Canadian data includes Wholesale and Manufacturing Sales.