FX Trader, Loonieviews.net
USDCAD plunged when Canadian inflation surged in July. Analysts were forecasting CPI to be unchanged from June’s result; instead, CPI rose 3.0%, year-on-year; core CPI rose 1.6% y/y. Traders noted that the headline 3.0% increase is the top of the Bank of Canada’s 1-3% inflation range. The data could improve the odds for a September 5 rate hike. Statistics Canada said that energy prices contributed the most to the data.
USDCAD losses may be limited due to the state of the Nafta renegotiations. Yesterday President Trump confirmed, “We’re not negotiating with Canada right now.” He added “I’m hopeful with Mexico and then I hope once we get one with Mexico that Canada will come along,”
Canadian officials have been mute on the issue only saying that they are in contact with the counterparties.
Wall Street opened flat, ignoring weakness in European bourses and fresh threats from the US administration against Turkey. That was yesterday’s news, but USDTRY did not react until just before the New York open.
The newly appointed Special Envoy to Iran said the US would put sanctions on any country importing Iranian oil. China gets most of its crude from Iran.
FX traders have ignored the latest threats and sold US dollars against the major G10 currencies since New York opened. The gains are modest, and they haven’t altered the underlying bullish US dollar trend. The US dollar index (USDX) uptrend from the middle of April is intact above 95.00. However, in the short term, there is room for correction. The latest USDX rally stalled at 96.84, a break below support in the 95.80 area is needed to suggest an extended correction.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
