With price pressures still running at a subdued level throughout the developed world, hotter-than-expected inflation readings have been hard to come by of late. Perhaps today’s Canadian inflation data marks a turning point for that trend.
The U.S. dollar appreciated versus most major pairs on Friday. The Japanese yen outperformed the greenback as a safe haven, but all other major currencies suffered heavy losses during the week. Tense trade developments between China and the United States and Friday’s drop in the Turkish lira dragged emerging and developed markets lower as US sanctions were doubled.
After this morning’s big moves in the Turkish Lira, euro and pound, and the sizeable stock market falls, more volatility is expected in the early North American session.
The U.S. dollar is mixed on Friday against major pairs. The U.S. economy grew at a 4.1% pace on the second quarter according to the first estimate. The number came in right on the forecast which had no positive effect for the U.S. dollar, but it did validate the U.S. Federal Reserve decision to keep a tighter monetary policy with two more rate hikes in the horizon this year.
The U.S. dollar/Canadian dollar (USD/CAD) slumped on Friday following the release of stronger Canadian data, while the U.S. dollar pulled back across the board amid profit-taking and after President Donald Trump had criticised the Federal Reserve’s interest rate rises the day before. Canada's retail sales rose 2.0% month-over-month in May versus 1.0% expected with core sales climbing 1.4% on the month, also better than expected.
The U.S. dollar was on course to end sharply higher yesterday until Donald Trump spoke. While the greenback has steadied and could still push higher, market participants are now in no doubt what the President thinks of the currency’s growing value and rising interest rates in the United States. But can he actually do anything to stop them rising?
Earlier I wrote on the U.S. dollar/Japanese yen (USD/JPY) currency pair, highlighting a potential breakout in that pair above a long-term bearish trend line. In fact, weakness in the yen is a dominant theme as the ongoing stock market rally continues to undermine the appeal of the safe haven currency. One interesting yen pair to watch this week could actually be the Canadian dollar/Japanese yen (CAD/JPY), due to the Bank of Canada’s rate decision tomorrow.
As we noted in our Bank of Canada Preview report, today’s BOC meeting was never really about if the central bank would raise interest rates (even after last night’s escalation in the global trade war); instead, traders were focused on BOC policymakers’ outlook for future economic growth and what that would mean for interest rates moving forward.
