Canada inflation rises 3.6% y/y in May
FOMC dot-plot in focus
US dollar traded quietly overnight, opens with small losses
USDCAD open 1.2182-86, Overnight range 1.2173-1.2188, Previous close 1.2187
FX at a Glance
FX Recap and outlook
It’s getting rather hot in Canada, inflation-wise. CPI rose 3.6% in May compared to 3.4% in April, and Statistics Canada admits it is not all due to base effects, noting” base-year effects affected the 12-month price movement for only a few key goods and services in May 2021.” The inflation increase may force the Bank of Canada to re-evaluate the timing of the next rate increase.
Despite the robust result, USDCAD barely budged, with prices remaining inside the narrow overnight range.
A quiet overnight session becomes a quiet morning session in North America for FX and other markets. as traders will twiddle their thumbs until the FOMC statement at 11:00 am PT.
Fed Chair Powell will likely deliver a cautiously upbeat economic outlook as he dances around the “transitory” rise in inflation. The question is “Do the April and May CPI reports meet Powell’s threshold for “allowing inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well-anchored at 2 percent?” Or will he want more time.
A shift in the Dot-plot forecast could cause some excitement. However, Powell will stress (as he usually does) that the dot-plot is not a consensus forecast but just a guess from an individual policymaker.
China sparked a drop in global commodity prices after it ordered state-owned companies to limit their exposure to foreign commodities markets.
EURUSD drifted in a 1.2117-1.2133 band and maintains a bearish bias while prices are below the 1.2150-60 area.
GBPUSD popped from a low of 1.4078 in Asia to 1.4122 in Europe after a series of better than expected economic data. Inflation rose 2.1% y/y in May, beating the 1.8% forecast and above the April 1.5% y/y result. The Producer Price Index (PPI) missed the consensus estimate but was still higher than the April print. The intraday GBPUSD technicals are bullish above 1.4080.
USDJPY traded lower, falling from 110.13 to 109.91, coinciding with US 10-year Treasury yields inching down from 1.502% to 1.484%. Japan’s trade surplus shrank.
AUDUSD, and NZDUSD traded firmer on the back of broad, but modest US dollar selling pressures vs the G-10 major currency pairs.
USDCAD was steady in a tight range while ignoring high oil prices. Oil prices are higher after the API weekly crude report showed US inventories fell 8.5 million barrels last week. WTI oil topped out at $72.80/b overnight before slipping to $72.29 in NY.
US data (Building Permits, Housing Starts, and Import and Export Prices) had no impact on FX trading.
USDCAD technical outlook
The USDCAD technicals are bullish above 1.2110 on the hourly chart, looking for a break above 1.2210 to extend gains to 1.2250. A move below 1.2160 shifts the focus to 1.2110. However, the long term trend is bearish while prices are below 1.2420-50 on a weekly chart. For today, USDCAD support is at 1.2150 and 1.2110. Resistance is at 1.2210 and 1.2250. Today’s range 1.2110-1.2210.
Chart USDCAD weekly
Source: Saxo Bank
FX open, high, low, previous close
Source: Saxo Bank