USD / CAD – Canadian Dollar stuck in a rut

– Markets are hoping for a dovish Powell testimony.

– Traders biding their time until Thursday’s US CPI data.

– US dollar largely unchanged after quiet overnight session.

USDCAD: open 1.3641, overnight range 1.3628-1.3648, close 1.3637, WTI $81.92, Gold, $2364.44.

The Canadian dollar traded choppily in a narrow range ahead of Fed Chair Jerome Powell’s semi-annual testimony to Congress today. Traders are working themselves into a lather, anticipating that Mr. Powell adopts a bearish tone to the US interest rate outlook. Bond traders are anticipating such an outcome, which is a major reason why the odds of a September rate cut have risen to 77% from 46.6% a month ago. It may just be wishful thinking. On June 21, the FOMC’s Summary of Projections showed policymakers only expected to reduce interest rates once in 2024. The minutes revealed that most FOMC members were concerned about upside risks to their inflation outlooks. Mr. Powell is not likely to deviate from that message.

Oil prices have retreated from their recent peak, mainly because Hurricane Beryl has been downgraded to Tropical Storm Beryl, which reduced the risk of US crude production interruptions. Prices are also defensive because of fears of reduced Chinese demand, although ongoing Middle East tensions should limit losses.

Asian equity traders were in a good mood. Japan’s Nikkei 225 index closed at a new record high after rising 1.96% while Australia’s ASX 200 climbed 0.86%. European traders were not so happy, and the major bourses are all in the red this morning. The French CAC 40 is down 0.80%, and the German Dax has lost 0.47%. S&P 500 futures are up 0.20%.

EURUSD is at the bottom of its 1.0813-1.0833 range. Prices were pressured after Bank of Italy governor and ECB policymaker Fabio Panetta suggested lower rates were likely. He said, “The reduction of official rates can proceed gradually, accompanying the return of inflation towards the objective, if macroeconomic trends remain in line with the ECB’s expectations.”

GBPUSD gave up earlier gains and is trading at the bottom of its 1.2793-1.2826 band. BRC June Retail Sales fell 0.5% compared to the forecast for a 0.2% gain. The drop was blamed on cool weather in the first part of June.

USDJPY inched higher in a 160.74-161.18 range despite the soft US 10-year Treasury yield profile, although rates, at 4.29%, are a couple of ticks firmer compared to the close.

AUDUSD traded sideways in a 0.6728-0.6748 range following mixed data. Westpac Consumer Confidence fell 1.1% in July (previous 1.7%), and NAB’s Business Conditions Index dipped to 4 from 6. On the positive side, NAB Business Confidence rose to 4 from an upwardly revised -2 previously. The data was ignored.

The US and Canadian economic calendars are empty.

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