- USD/CAD was down nearly 0.80% on Monday due to a risk-on environment, US dollar weakness and elevated oil prices.
- Last week’s data on US inflation, mainly core CPI, eased fears of a 100 basis point Fed rate hike, as most policymakers opposed it.
- Inflation and Canadian retail sales would shed some light on the BoC’s trajectory after the BoC’s big rally.
USD/CAD falls for the second day in a row, erasing last Thursday’s gains, and returns below last week’s low of 1.2936, due in part to a weakening US dollar retreating from 108,000, almost 1% amid of an upbeat mood in the markets, buoyed by speculation that the Fed will not tighten its monetary policy as aggressively as expected.
Therefore, USD/CAD trades at 1.2924, slumping below the 200 hourly simple moving average (SMA), breaking below 1.3000, and posting a daily low around 1.2898, which would exacerbate a test from lows of 1.2837 in a light US calendar week, and also as Fed spokesmen entered the blackout period.
USD/CAD falls on risk appetite, dollar softness and high oil prices
Global stocks rise sharply. 10-year US Treasury yields rise as they break above the 3% threshold as market players curtail flows to safety. Traders are shrugging off concerns over the recent Covid-19 outbreak in China, despite 580 local cases being reported on Saturday. Crude oil prices, mainly WTI, meanwhile, rose 4,549%, changing hands at 98.
$92 BPD, which strengthened the Canadian dollar, a dollar headwind.
On the US calendar, housing data will take center stage on Monday, although markets are focused on inflation and growth, so their reaction would be interesting. During the past week, US inflation remained at higher levels; in both readings, that of consumers and that of the prices paid by producers. However, the core CPI fell below the 6% threshold, falling for the third consecutive month, illustrating that food and energy are the main contributors to the high rate of inflation.
That said, the Fed’s expectations of 100 basis points have so far faded. CME’s FedWatchtool shows a 30% chance of an interest rate hike, but still shows a 75 basis point hike, in line with most CME policymakers. Fed namely Waller, Bullard, Mester and Daly. The one exception was Atlanta Fed President Raphael Bostic, who declared that “everything is on the table” following the June CPI release.
Elsewhere, the Bank of Canada unexpectedly raised rates by more than expected by about 100 basis points, emphasizing that they would do what was necessary to control inflation. Also, at the press conference, BOC Governor Macklem said that bringing rate hikes forward now would help avoid even higher rates in the future, while adding that advance cycles tend to be followed by lower landings. soft.
What to watch out for
Data on home construction, inflation and retail sales will be released on the Canadian docket. In the US, the calendar will be packed with data on housing starts, building permits, existing home sales, initial jobless claims and global PMIs for July.
USD/CAD Key Technical Levels
Source: Fx Street
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