News & Analysis


Remember last month’s 9-month high? It’s old news now as the loonie picked up some momentum on Thursday as a wave of dollar selling continued, allowing CAD to break new ground. It was the kind of rally we would have expected on Wednesday, but regardless, better late than never. A soft PPI print out of the US added support to the cooling inflation/soft landing story, leading CAD to strengthen by over half a percent against USD. Not only that, but equities went on a tear, while WTI crude broke the $77 handle after a major Libyan oilfield went offline, giving the loonie a helping hand. The main news in Canada was that a dockworkers’ strike in British Columbia finally came to an end, having disrupted nearly C$9bn in trade over two weeks. Today, the two data releases for Canada are manufacturing sales for May and existing home sales for June. Economists expect a strong 0.8% monthly increase in manufacturing activity, which would bode well for Q2 GDP.


Yesterday saw the post-CPI move lower in the dollar extend as markets continued to trade the disinflation trend. Producer price inflation data for June didn’t necessarily stand in its way either, with prices continuing to cool on an annualised basis and the monthly measure also undershooting expectations. This time around in markets, however, the Japanese yen joined the Canadian dollar at the bottom of the G10 rankings as the early movers against the greenback began to lose some steam. Instead, it was the high beta currencies, and more specifically those where entry points still looked cheaply valued, where the gains continued to be in excess of a percent. The anomaly to this generalisation was the Swiss franc. Gaining 1.05% against the dollar to reach its highest level since the SNB removed the franc peg in 2015, the Swissie continues to scan as somewhat rich by a range of measures. The move in USDCHF wasn’t necessarily driven by cross-currency dynamics either, with the more liquid and observed EURCHF rate also grinding lower on the day. Given the 3.5% move against the dollar and 1.2% rally versus the euro over the course of the week, a lot of eyes will now be on the Swissie to not only see if it can consolidate these excessive gains when compared to its price action year-to-date but also the Swiss National Bank’s response. To that end, Monday morning’s sight deposit data, which is used as a proxy measure for the central bank’s real-time FX management actions, will be key. Ahead of the weekend, however, traders are taking some profit in the cross-asset moves this week. Treasury yields are bouncing, the broad dollar move is retracing slightly, and equity futures are trading in the red, despite little noticeable risk-off trigger overnight. Given the pace of the moves this week in markets, such a rebound is understandable and will likely continue throughout the day given the lack of economic events in the calendar. The only notable event is an interview taken by Chicago Fed President and FOMC voting member Austan Goolsbee on Fox news at 14:10 BST. While Fed speakers have struggled to push back on the effective loosening of financial conditions in the aftermath of the jobs and inflation data, commentary by Goolsbee will still be closely monitored given it is the last markets will hear from US monetary policymakers until the next Fed meeting on the 26th.


After breaking one psychological barrier on Wednesday following the weaker US inflation data, traders got a taste for it and decided to push the single currency up another big figure and through another psychological threshold in doing so. Driving the price action in EURUSD once again was a narrowing in front-end rate differentials. While in nominal terms the 2-year yield spread is only back to its mid-May lows, once adjusted for inflation expectations, which are naturally tumbling in the US following the softer inflation data, the spread on 2-year rates is the lowest it has been since March 2022 at just 150bps. If this historical comparison sounds familiar, it’s because EURUSD is also trading at heights not seen since the onset of the war in Ukraine. All things considered, this should be supportive of the single currency consolidating at these levels, but for EURUSD to truly find a new range we think traders will also need to see a stabilisation in eurozone growth conditions. To this end, July’s flash PMIs released on the 24th will be key for the single currency moving forward. In advance of that, we expect positioning and valuations to play a major role for the euro alongside developments in China’s growth profile. While the former are resulting in a slight retracement in the single currency this morning, alongside the broader profit taking underway in markets ahead of the weekend, the latter may see downside in the euro extend next week should China’s  Q2 GDP data on Monday underwhelm already depressed expectations in the absence of any further stimulus measures.


Wednesday’s excitement for the pound continued into yesterday’s session, a dynamic that saw sterling climb more than a percent against the dollar to post another YTD high, as well as a quarter of a percent rise against the euro. Helped along by some better than expected GDP data, the day’s rally largely represented a catch-up move, after the pound had initially failed to pick up the same level of support as other G10 currencies following the release of US CPI data. Beyond this, yesterday also saw the UK government accept the recommendations of a recent pay review in full, committing to pay rises for public sector workers of between 5 and 7 per cent. This came as a surprise to some observers, with ministers having previously warned that any such agreement risked embedding yet more inflation in the economy. In declaring this is his final offer to unions, however, Prime Minister Rishi Sunak will be hoping that this offer is sufficient to end the wave of strike action that has been deeply disruptive to the UK economy. Whether this works or not  will be something to keep an eye on today, with little else in the UK data calendar, political news looks likely to be the best hope for some market moving headlines.


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