– Canada Retail Sales expected to fall 0.3% m/m
– Markets on hold until Powell’s speech at 10:am ET
– US rangebound but modestly firmer from yesterday’s opening levels.
USDCAD: open 1.3588, overnight range 1.3582-1.3618, close 1.3617, WTI $73.81, Gold, $2499.19
The Canadian dollar is swaying with the shifts in US dollar sentiment, which is largely driven by the current US interest rate outlook. Traders are now pricing in up to three FOMC rate cuts before the end of the year—two more than what was projected in June’s Summary of Projections. Analysts are citing weakening US employment data and easing inflation as reasons for this aggressive rate outlook. However, Fed officials don’t seem to fully agree. While many policymakers acknowledge the need for lower rates, they appear united in advocating for a gradual approach due to underlying risks.
All eyes are on Fed Chair Jerome Powell’s upcoming speech at the Kansas City Fed’s Jackson Hole Symposium. Will he affirm the market’s expectations for significant rate cuts, or will he echo the cautious, gradual approach preferred by his colleagues? The odds favor the latter, as Powell is unlikely to bow to market pressure. If he sticks to the gradual narrative, we could see the US dollar recover some of its recent losses, stock prices might dip, and Treasury yields could rise.
Asian equity markets ended the day mixed. Japan’s Nikkei index rose by 0.40%, while Australia’s ASX 200 index remained flat. Hong Kong’s Hang Seng index dipped by 0.16%. In Europe, markets are stronger, with the German Dax leading the way with a 0.66% increase. S&P 500 futures are up 0.50%, and the US 10-year Treasury yield remains steady at 3.85%.
Canada’s retail sales for June are expected to show a 0.3% m/m decline, with retail sales excluding autos down 0.2%. Weak results would highlight Canada’s sluggish economic performance, but any impact on the market is likely to be short-lived, with Powell’s speech on the horizon.
EURUSD managed to recover much of its previous day’s losses, fluctuating between 1.1108 and 1.1132. Most traders opted to stay on the sidelines, awaiting Jerome Powell’s anticipated comments around 10:00 am EDT.
GBPUSD saw an uptick, trading within a 1.3085-1.3137 range as traders adjusted their positions in anticipation of a dovish tone from Powell. There was less focus on Bank of England Governor Andrew Bailey’s forthcoming speech at Jackson Hole. The UK GfK consumer confidence index for August remained steady at -13, which had no noticeable effect on trading.
USDJPY experienced a volatile session, swinging between 145.29 and 146.34. Support emerged after the Bank of Japan Governor suggested that rate hikes could be on the horizon. He noted that “Japan’s short-term rates are very low. If the economy performs well, they will rise to levels considered neutral,” though he also cautioned about significant uncertainty regarding the eventual rate levels.
AUDUSD held onto its recent gains, trading within a 0.6702-0.6733 range, supported by a slight increase in commodity prices.
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