By Michael O’Neill

Air traffic controllers are very adept at separating “blips” from “noise” and their skillset prevents airports from around the world being littered with the wreckage of colliding aircraft. Separating “blips” from noise is a tad more difficult in FX markets as was readily apparent on Tuesday.

The Loonie dipped Tuesday and the catalyst for the move is not readily apparent. Some analysts suggested the slide was because of cooling Canadian inflation which saw headline CPI rise 1.7% y/y in July compared to 1.9% in June. TD Bank economists thought the result would spur the BoC to action, writing about the slowing economic growth saying “it looks like the scenario the BoC highlighted as giving rise to the need for a further reduction in the policy interest rate.”

Scotiabank economists do not seem to agree. Chief Economist Derek Holt raised questions about the reliability of the data.

In addition, the July inflation number didn’t do anything to alleviate BoC policymakers’ concerns about how Trump’s tariffs will influence prices. The July 30 Monetary Policy Report (MPR) clearly stated that officials “will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade.” They do not plan on cutting rates further unless, “a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained.” The data may be dodgy, the argument for a rate cut is thin, and the BoC needs more data—that makes it noise.

Herd Mentality
Financial markets are so entwined that something that disrupts one market spreads to other markets like syrup on pancakes. That was evident Tuesday. Record or near-record high prices for tech stocks like Nvidia, Palantir, and Advanced Micro Devices (AMD), ongoing uncertainty around the US economy and caution ahead of Fed Chair Jerome Powell’s Jackson Hole speech, triggered a profit-taking sell-off that fed on itself. That risk aversion sentiment spilled into FX and the US dollar rally across the board on “safe-haven” demand. The reactions were exacerbated by poor liquidity due to thin summer markets.

The Technicals Picture – Noisy

USDCAD is circling the 1.3860 mark, boxed in by support at 1.3725 and resistance at 1.3950 while sitting above the 100-day moving average (1.3794) but below the 200-day (1.4035). That means neither bulls nor bears can claim victory. Furthermore, price action is brushing up against the upper Bollinger Band, pointing to mild USD strength, but momentum is fadindg—RSI cooled back into the high 50s after flirting with overbought territory, MACD is flat, and ADX at 21 shouts “trendless.” In short, this is a consolidation market with a slight USD bid in a 1.3650–1.3950 range.

FOMC Minutes Will Be Lost in Jackson Hole

Traders seem to think that the FOMC minutes from the July 30 meeting will prove to be very insightful about how Fed policymakers are viewing the outlook for US rates. They won’t be.
The two Governors who voted to cut rates, Christopher Waller and Michelle Bowman, were seen as grandstanding to get Trump’s approval. The others fear the inflationary impact from his tariffs, and August data—stronger PPI and core CPI—justifies their concern. They know prices are rising, but the President does not.

He took to TruthSocial to complain “Could somebody please inform Jerome ‘Too Late’ Powell that he is hurting the Housing Industry, very badly? People can’t get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut. ‘Too Late’ is a disaster!”

Fed Chair Powell has been belittled, bullied and insulted by Trump since the beginning of the year. The President has called him a fool, a major loser, a numbskull, and a stubborn mule while Powell says nothing—publicly. There are plenty of employment and inflation reports which will be released before the next monetary policy meeting on September 17 and the “data-dependent” Fed Chair will be loath to say anything that would imply lower rates in his final speech from Jackson Hole.

So, if the Canadian data is questionable, the tech sell-off just profit-taking and Powell unlikely to deliver dovish remarks at Jackson Hole, the recent Loonie dip is merely a blip.