Source: Pixabay

May 19, 2021

Canada inflation soars 3.4% m/m in April

FOMC minutes ahead

US dollar rebounds on inflation fears

USDCAD open 1.2084-88, Overnight range 1.2055-1.2094, Previous close 1.2061

FX at a Glance

FX Recap and Outlook

Canada inflation jumped to 3.4% m/m in April, the fastest pace since May 2011. But it is not a big deal.  Statistics Canada said the gain is because prices fell sharply in April 2020.  USDCAD dipsy-doodled around the release and is unchanged but at 1.2075, below the overnight peak.

Asia markets fell, following  Tuesday’s drop on Wall Street.  Japan’s Nikkei fell 1.28%. Things didn’t get better in Europe, where the German DAX, (down 1.70% (65:35 am PT), leads the major European bourses lower. S&P 500 and DJIA futures a negative open on Wall Street.  Gold and oil prices have retreated as 10-year US Treasury yields increase to 1.657%. The modest shift to negative risk sentiment boosted the US dollar across the board.

A drop in Bitcoin (BTCUSD) which rattled equity markets yesterday, continued overnight with prices falling from $43,602.04 to $38,585.86 before climbing to $39,773.95 in early NY.  China’s PBoC comment that digital tokens are not allowed as payment combined with Elon Musk’s earlier tweets is behind the move.

The FOMC minutes from the April 28 meeting are released at 2:00 pm ET.  Analysts will parse the document seeking clues to the Fed’s inflation mindset.

Former Treasury Secretary Larry Summers thinks the FOMC policy is out to lunch.  He suggested the members “walk outside” to realize their concern over the labour market is misguided.

EURUSD traded firmer in Asia, rising to 1.2244 from 1.2223. However, renewed US inflation concerns drove prices down to 1.2202 in NY.  Eurozone CPI was 0.6% m/m in April, as forecast.  ECB Council member Luis de Guindos supports the ECB’s dovish monetary policy saying, “My personal view is that we should err on the side of prudence.  It is much better to be prudent than be a little too aggressive in terms of phasing out the support measures.”  EURUSD has support at 1.2180.

GBPUSD traded sideways in Asia then dropped in Europe, falling from 1.4199 to 1.4154. Prices dropped due to broad US dollar strength, with traders ignoring higher than expected April CPI, which rose 1.5% y/y compared to 0.7% in March.  Core inflation rose 1.3%. PPI and Retail Price Index were also higher than expected.  Part of the sell-off was due to profit-taking ahead of the FOMC minutes and in the face of mildly negative risk sentiment.

USDJPY rallied from 108.84 to 109.21 as prices tracked increases in US Treasury yields.  Weaker than expected Industrial Production and Capacity Utilization data support the BoJ’s view that monetary policy needs to remain very accommodative.

AUDUSD  and NZDUSD suffered due to broad US dollar demand.  AUDUSD weakness was exacerbated by weaker than expected Consumer Confidence.

USDCAD price action is directed by general US dollar sentiment, and that sentiment is bullish. Prices are supported by a bit of profit-taking ahead of the FOMC minutes.  Recently, a slew of Fed officials commented that US monetary policy is appropriate, which suggest the FOMC minutes will not have much of an impact.  USDCAD continues to be weighed down by steady to firm oil prices and expectations for a robust economic recovery.

The US economic calendar is empty.

USDCAD Technical Outlook

The USDCAD downtrend from April 22 is intact while prices are below 1.2150,  Yesterday’s rally from 1.2015 TO 1.2073 yesterday is merely a correction.  A move above 1.2150 targets 1.2250 while a break below 1.2040 targets 1.2000. Today’s Range 1.2020-1.2120

Chart: USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank