– Soft US inflation data hope driving US dollar down.
– RBNZ turns dovish and cuts rates by 25 bps.
– US dollar trading with negative bias.
USDCAD: open 1.3702, overnight range 1.3700-1.3721, close 1.3706, WTI $78.18, Gold, $2473.90
The Canadian dollar is riding high thanks to wide-spread US dollar selling in anticipation of the Fed launching a new easing cycle beginning in September. Yesterday’s weaker than expected PPI data and hopes for a similar result with today’s CPI report have traders salivating for a 50bp rate cut in September.
West Texas Intermediate oil prices have retreated from this week’s peak after Opec and the EIA expressed concerns about crude supply outstripping demand in the second half of this year. The American Petroleum Institute (API) reported crude stocks fell by 5.2 million barrels last week.
The news fueled a global stock market rally. Wall Street closed with strong gains. Japan’s Topix index led Asian markets higher with a gain of 1.11%. European bourses are all in the green with the German Dax up 0.38%. However, S&P 500 futures are flat. The US 10-year treasury yield is 3.83%.
Yesterday’s rally in EURUSD extended into the overnight session, with the pair climbing from 1.0984 to 1.1029 before pausing ahead of this morning’s US inflation report. The potential for further gains above 1.1035 might encounter resistance, especially around 10:00 am EDT when a $1.8 billion option strike expires. Additionally, the year-to-date peak of 1.1038 could attract some selling pressure.
GBPUSD is recovering from losses incurred after the UK CPI report. The pair fell from 1.2868 to 1.2819 when inflation data came in lower than expected, raising the likelihood of a rate cut in September. However, the report presented a mixed picture, with headline CPI rising by 2.2%, which is slightly higher than June’s 2.0% increase.
USDJPY experienced a rally from 146.08 to 147.50 in Asian trading before easing back to 147.03 in early New York trading. The recent price movements are mostly noise ahead of the August 23 parliamentary session, where BoJ Governor Kazuo Ueda will speak. Looking ahead, the BoJ is expected to raise rates again in 2024, with analysts anticipating further unwinding of carry trades.
AUDUSD traded within a narrow range of 0.6618-0.6643 ahead of the US inflation release. In contrast, NZDUSD saw a sharp decline after the RBNZ unexpectedly cut rates by 25 bps to 5.25%, a move that surprised more than half the market. Prices fell from 0.6084 to 0.6003 as policymakers now expect the economy to have entered a recession mid-year, with inflation likely to stabilize around 2.0%. ASB Bank forecasts that rates could fall further, potentially reaching 3.25% by the end of 2025
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