NY Open: Inflation surge boosts CAD
A surprisingly strong Canadian inflation print has placed USDCAD on its back foot in the early New York session. Could this clear a path towards a September rate hike from the Bank of Canada?
The star-spangled banner is waving and the rockets' glare is red, but as far as FX markets and markets in general are concerned, the trading day has been put to bed. All US markets are closed for Independence Day celebrations. Canada is open, but in the trade rooms of the major banks it is “client golfing day.”
USDCAD may have a bit of action, at least until the UK traders go home. USDCAD is in a downtrend while prices are below 1.3160 and looking for a test of support in the 1.3090-1.3105 area. A break of this support would lead to a test of 1.3050 and then 1.2950.
The Bank of Canada is widely expected to raise interest rates on July 12 despite elevated trade tensions with the US. Last week, BoC governor Stephen Poloz told markets that monetary policy decisions were “data-dependent, not headline-dependent.” The Business Outlook Survey and April GDP data supported a rate hike. Friday, Canadian trade and employment reports are due. Better than expected data will assure a rate hike next week and give rise to speculation of additional increases down the road.
Canada and Mexico are eager to continue Nafta talks. President Trump appears content to wait until after the US elections in November.
The release of the Federal Open Market Committee meeting minutes on Thursday provides traders with another reason to limit trading activity. Economists and analysts will study the minutes for evidence that the robust US economic growth could alter the pace and timing of the next rate hike.
The major currencies, meanwhile, are vulnerable to random moves due to the lack of liquidity.