– China inflation is lower than expected.
– Markets sidelined ahead of US CPI data, tomorrow.
– US dollar gives back some of yesterday’s gains overnight.
USDCAD: open: 1.3416-20, overnight range: 1.3405-1.3430, close 1.3418, WTI $83.68, Gold $1936.04
The Canadian dollar found a moment of relief yesterday afternoon, showing resilience by recovering a portion of its earlier morning losses as the day progressed. During the overnight hours, the currency maintained a quiet and steady course within a narrow range.
Strikingly, this price action wasn’t steered by domestic economic indicators or any other intrinsic factors. Rather, it was part of a broader market sentiment shift characterized as “risk-off,” triggered by underwhelming Chinese trade data. The outcome? An escalated demand for the US dollar vis-à-vis other major currencies.
Echoing previous dynamics, the Chinese data came into the spotlight again during the overnight hours. July’s Consumer Price Index (CPI) registered a year-on-year contraction of 0.3%, while Producer Price Index (PPP) plummeted by an even more significant 4.4% year-on-year. This data suggests a notable decline in consumer spending, an unfavorable indication for overall economic growth. Chinese authorities attributed this decline in consumer prices to an elevated base rate from the previous year, asserting its temporary nature.
Shifting the focus, the global risk sentiment took a positive turn as stock markets staged a rally, propelled by the Italian authorities’ reversal of their “windfall” bank tax policy. Interestingly, just a day earlier, the Italian government had initiated a 40% tax on “windfall” bank profits, only to encounter stark opposition from the market. This opposition led to a substantial erosion of market capitalization, wiping off over $10 billion from the value of a couple of Italian banks. Today, the authorities adopted a more measured stance, capping the tax at 0.1% of total bank assets.
Turning to European equity indexes, a surge was observed today. However, all indexes retraced slightly from their early New York trading peaks. In a parallel trajectory, S&P 500 futures enjoyed positive terrain, boasting an increase of 0.19%.
Amidst this activity, EURUSD displayed muted behavior, navigating a range between 1.0952 and 1.0988. The absence of significant economic reports left the stock market to fill the directional vacuum.
Meanwhile, GBPUSD observed measured movements within a range of 1.2730 to 1.2782. Notably, prices found support from Barclays Bank’s projections, suggesting that the currency could be buttressed by a prolonged “higher-for-longer” interest rate outlook, buoyed by robust consumer demand and a thriving labor market.
In USDJPY, a subdued drift characterized its performance within the confines of a range from 143.00 to 143.40. The currency pair’s dynamics reflected the combination of the Bank of Japan’s dovish stance and the looming potential for elevated US interest rates.
Down under, AUDUSD adopted a cautious stance, trading within a band of 0.6529 to 0.6571. This defensive posture was influenced by the reverberations of disappointing Chinese inflation data, contributing to a sense of market caution.
Canada’s Building Permits data are on tap while the US data calendar is empty.