News & Analysis


With last week’s US CPI release failing to spark much action for USDCAD, traders will be hoping that the release of inflation data north of the border brings with it some more excitement. Headline measures are expected to tick up, with the YoY figure expected to print at 3.0% for July, up from 2.8% in June, with core measures moderating by only a fraction. Given that markets currently see a roughly one in two chance of a final rate hike from the BoC, an on-consensus release is unlikely to settle the debate one way or the other. Beyond this, loonie traders are likely to be looking at oil prices, with more signs of a slowdown in China weighing against restricted OPEC output. For now, the latter is helping keep WTI above $80 a barrel, supporting the loonie at current levels. But further signs of a global slowdown would be a clear and present concern for those looking for the loonie to break out of current trading ranges.


The dollar is leading price action once again this morning, despite limited top tier data out of the US once again this week, with the DXY index starting the day up just under 0.1%. Instead, it is yet more worries around the state of the Chinese economy that is driving FX markets. More bad news around the state of Chinese real estate developer Country Garden emerged this morning, with trading halted on 10 bonds, adding to fears the slow moving crisis that has engulfed Chinese real estate is beginning to pick up steam. In this environment, signs of weakness out of China are leading a modest risk off tone in markets this morning, which combined with a renewed narrative of US outperformance is leading the dollar higher to start the day. Through the rest of the week, despite limited news out of the US, a raft of data points across developed markets, including from the UK, Canada, Australia, Sweden and Japan, alongside policy decisions from the Norgesbank and RBNZ, should bring price action in G10 FX back to life following a quiet week last week.


A quiet summer season is set to continue in Europe this week with no top tier data releases on note due to land. With ECB speakers also having been absent from the newswires last week, a trend that is set to continue, market implied expectations have remained largely unmoved, as has the euro. That being said, pricing for ECB policy rates might be one to watch this week, given that in the absence of any guidance from policymakers, traders may begin to draw on developments elsewhere to form their own conclusions on the path forwards for eurozone rates. Failing this, it should in principle be a quiet week for EURUSD, though with plenty going outside of the eurozone, price action on euro crosses is still well worth keeping an eye on.


A big week for UK data kicks off in earnest early tomorrow morning with data on wages and employment that could well hold the key to the path forward for Bank of England policy tightening. Especially so given last Friday’s data dump that included the latest GDP figures pointed to a UK economy performing far better than expected at this point in the rate hiking cycle. Naturally this saw traders increasing bets on the likelihood for further policy tightening, with a peak in bank rate north of 5.75% currently anticipated. But whilst the pound has remained largely range bound against the dollar over the past week, evidence that the Bank of England is managing to bring inflation under control is likely to throw cold water on the prospect of Bank Rate hitting that level over the next few days. For today though, limited data flow should see positioning for tomorrow’s data as the key impetus behind any moves in the pound, with sterling looking set for a relatively quiet day before things start to heat up through the rest of the week.



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