NY Open: Inflation surge boosts CAD

Michael O’Neill

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. 

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USDX (four-hour, source: Saxo Bank)

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