– Expect a quiet session until FOMC meeting this afternoon.
– UK inflation rises to 8 month peak
– US dollar opens on a mixed note-NSD is the worst performing currency.
USDCAD: open: 1.4322, overnight range,1.4305-1.4332, close 1.4311, WTI $70.02, Gold, $2648.59
The Canadian dollar fell to a fresh low overnight, driven by a mix of political uncertainty and disappointing economic data. Monday’s Fall Economic Update revealed that the 2024 budget deficit is now expected to balloon to $60.1 billion, a sharp increase from the $40 billion forecast in March.
The currency pair remains underpinned by the Bank of Canada’s dovish stance, which contrasts with the Federal Reserve’s neutral outlook. Adding to the headwinds, Trump’s renewed threat of imposing 25% tariffs on all Canadian imports is weighing heavily on sentiment, particularly given Canada’s ongoing political dysfunction.
WTI oil prices edged higher, climbing from $69.62 to $70.30 after the American Petroleum Institute reported a significant 4.7 million-barrel decline in crude inventories. However, gains remain capped as OPEC signals weakening near-term demand.
The usual tension and theatrics leading up to an FOMC policy meeting are absent this time, as the spotlight shifts to Trump’s return to the White House. A 25 bp rate cut is already baked into expectations, rendering the Summary of Projections dot-plot largely irrelevant. Policymakers are in the dark about potential tariff hikes or tax changes Trump could roll out on Day 1, leaving future FOMC forecasts at the mercy of his decisions.
EURUSD is drifting within a narrow 1.0488-1.0513 range, with yesterday’s ZEW and Ifo survey data having minimal impact. The single currency remains under pressure from the “strong dollar” narrative, which could gain traction if Powell’s remarks today lean hawkish.
GBPUSD is modestly higher, trading between 1.2679 and 1.2723, after UK inflation climbed to 2.6% y/y from 2.3%. However, the monthly figure slowed as anticipated, rising just 0.1% m/m. Robust wage growth and fiscal implications from the Autumn Budget suggest the Bank of England will hold off on cutting rates during tomorrow’s decision.
USDJPY moved aimlessly within a 153.34-153.79 band. Japan’s trade deficit narrowed on the back of stronger export growth. Markets expect the Bank of Japan to stand pat on rates at Friday’s meeting, though analysts at JPMorgan Chase foresee a potential 25 bp hike.
AUDUSD hit a new 2024 low, falling to 0.6305 overnight after sliding from 0.6341. Sentiment remains bearish amid growing expectations for RBA rate cuts following softer GDP data and a decline in commodity prices.
No Canadian economic data is on the docket today. In the U.S., the focus will be on Building Permits and Housing Starts.
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