Week in FX Americas – No Loonie Inflation Worries

Inflation is very much a ‘non-issue’ for Canada and its other G7 members. Canadian annual consumer prices accelerated last month to a four-month high, driven by some of the usual suspects, gas and costs of vehicles. However, the elevated +1.2% year-over-year rate remains well below the Bank of Canada’s threshold of +2% inflation target. This very much supports the dovish tone expressed by the BoC’s new-governor Poloz earlier this week. This would suggest that there is no immediate pressure on policy makers to be hiking rates any time soon.

The core rate, excluding food and energy, dropped -0.2% m/m, but was up +1.3% y/y, from +1.1%. The news saw short term rates slightly lower with 2-year yields at touching its 200 DMA of +1.08%. The rate differentials would benefit the dollar bulls outright, however, selling by the techs has dominated most of Fridays action. The commodity bulls and their underlying assets are very much in tow supporting them.

Historically, the loonie is known as a commodity and interest rate sensitive traded currency. This week, both crude oil and gold have helped the currency to end on a high. Crude had gains of +$3.50 on the week and close to +$12 on the month, while gold too is rallying for a second day. The yellow metals prices are bumping up against its two-month moving average, an effective resistance point since last February.

The dollar bears are expected to get braver only below Wednesday’s low of 1.0355, otherwise this currency pair is doomed to another contained G7 trading range.

WEEK AHEAD

* JPY Upper House Elections
* JPY Cabinet Office Monthly Economic Report for July
* AUD Consumer Prices Index
* NZD Reserve Bank of New Zealand Rate Decision
* GBP Gross Domestic Product
* USD Durable Goods Orders
* JPY National Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

Latest posts by Dean Popplewell (see all)