– Risk sentiment cautiously optimistic.
– US market re-open in a slight risk-adverse environment.
– US dollar recoups some losses against commodity bloc.
USDCAD snapshot: open 1.3228-32, overnight range 1.3208-1.3237, close 1.3210, WTI $71.63, Gold $1952.46
The Canadian dollar drifted aimlessly but stayed close to its recent peak level in a cautious overnight session.
The People’s Bank of China snipped its 1-year Loan Prime Rate (LPR) from 3.65% to 3.55% and its 5-year LPR to 4.2% from 4.3%. The news did not surprise anyone, and it also failed to trigger a “risk-on” rally. Instead, the Hong Kong Hang Seng index plunged 1.54%, while the Shanghai Shenzhen CSI 300 index fell 0.17%. Traders were disappointed that the rate cut announcement did not precede a highly anticipated fiscal stimulus plan.
The Canadian dollar performed admirably, even as the other commodity bloc currencies lost ground because it saw a bit of support from higher oil prices. West Texas Intermediate (WTI) climbed to $72.08/b overnight from an Asia low of $70.63. Oil traders believe that the inevitable Chinese stimulus package and the Saudi Arabian crude production cuts will drive prices above $80.00/barrel.
EURUSD continued to consolidate its post-ECB gains and traded in a 1.0912-1.0945 range. Some analysts are suggesting that the ECB may not be as hawkish as indicated by President Lagarde and Isabel Schnabel. Yesterday, Ms. Schnabel said that because the ECB underestimated inflation persistence last year, it raises the probability that they are still underestimating it. However, Chief Economist Philip Lane seemed less hawkish. He pushed back against talk about a September rate hike, saying it “is too far away, and policy is data-dependent.”
GBPUSD retreated from its recent peak and dropped to 1.2764 from 1.2805 due to profit-taking and position adjustments ahead of Wednesday’s inflation report and Thursday’s BoE meeting. GBPUSD rallied sharply in June and could revisit 1.2630 (the uptrend line from June 5) on a weaker-than-expected inflation report.
USDJPY chopped around with a negative bias in a 141.45-142.24 range. Profit-taking due to lower S&P 500 futures fueled the losses. Japan’s Industrial Production rose 0.7% in May, higher than the -0.3% forecast.
AUDUSD dropped from 0.6854 to 0.6785 after the RBA minutes revealed that policymakers were not as hawkish as thought, as policymakers were torn between a pause or a rate hike. Traders quickly downgraded their assessment of RBA aggressiveness.
US Building Permits and Housing Starts data are on tap.