USD / CAD – Canadian Dollar rally fails

– Flat inflation and slightly hawkish Fed-Huh!

– FOMC dot-plot projects one rate cut in 2024

– US dollar recouping some of yesterday’s losses

USDCAD: open 1.3742, overnight range 1.3714-1.3750, close 1.3725, WTI $77.75, Gold, $2315.64

The Canadian dollar did its best imitation of a ping-pong ball at a high-stakes tournament yesterday but calmed down overnight. USDCAD plummeted to 1.3680 from 1.3750 on the heels of a cooler-than-expected US inflation report. May CPI was flat compared to the consensus of a 0.1% m/m rise. More importantly, Core-CPI rose just 3.4% y/y compared to 3.6% y/y in April. That’s the kind of move that Fed officials said they needed to see before they could cut interest rates.

With that in mind, the US 10-year Treasury yield plunged to 4.25% from 4.41%, stocks rose, and the US dollar sank. Unfortunately, FOMC members were a tad less enthusiastic. The latest interest rate dot-plot projections showed policymakers reduced their expected Fed rate cuts expectations to just one in 2024, from three in the March Summary of Projections. A large part of the post-CPI moves was reversed. The 10-year Treasury yield jumped to 4.33% from 4.25%, and the greenback rallied.

Fed Chair Jerome Powell stressed that the dot-plot projections should be taken with a grain of salt as they were not FOMC policy but merely individual guesses. He said the dots should be taken with “a big grain of salt.”

Canadian dollar traders will get some more insight into the Bank of Canada’s monetary policy outlook from Deputy Governor Sharon Kozicki’s remarks this morning.

EURUSD traded narrowly in a 1.0801-1.0817 range after yesterday’s wild ride that saw the single currency rally from 1.0764 pre-CPI to 1.0853 ahead of the FOMC, then back down to 1.0800. Whiplash! Traders are undecided, and German Wholesale Price Index and Eurozone Industrial Production data couldn’t spark any interest. The EURUSD technicals are bullish above 1.0730 with gains capped at 1.0950.

GBPUSD traded in a 1.2762-1.2802 range with price action curtailed by caution ahead of next week’s UK inflation report and because of the election.

USDJPY traded in a 156.59-157.65 range with prices tracking the US 10-year Treasury yield, which is sitting at 4.31% today.

AUDUSD is trading in a 0.6640-0.6668 range with support from better-than-expected employment data fading. Australia gained 39,700 jobs (forecast 30,000), and the unemployment rate ticked down to 4.0% (previous 4.1%).

Today, US Producer Prices Index data and weekly jobless claims will provide direction.

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