- USDCAD bulls were knocked back as the US Dollar slumps again.
- All eyes are on US CPI and Fed speakers this week.
USDCAD is trading flat on the day following an initial surge in the early part of the New York session into shorts established at the start of the day in Asia and London. At the time of writing, the pair is trading at 1.3490 and has ranged between a high of 1.3553 and a low of 1.3465. The price is consolidating on coiled market conditions in the forex space as investors weigh the risks of this week’s Consumer Price Index, (CPI), and midterm elections from the US vs. prospects of heightened risk appetite.
The focus will also be on US inflation data, CPI, for October, due to be released on Thursday, for clues on whether the US Federal Reserve’s rapid interest rate hikes are helping cool down the economy. Traders are now betting on 61% odds of a 50-basis point rate hike at the US central bank’s meeting in December.
Risk-on, risk-off
Meanwhile, investor sentiment recovered in Asia and London following an initial opening gap in the forex space. The Hang Seng China Enterprise index in Hong Kong rose 2.8%, taking its 5-day gain to 12.6% even as Reuters reported that new Covid cases in China rose to a six-month high of 5,496 on Monday as the nation continues to grapple with new outbreaks.
Nevertheless, Kinger Lau, chief China equity strategist at Goldman Sachs, wrote in a note that China may start to reopen in the second quarter of next year and that a full reopening may drive a 20% upside for the nation’s stocks. Such sentiment has been a weight on the US dollar and positive for high-beta currencies such as the Canadian dollar. Such speculation that China, the world’s largest commodity consumer, might open its economy lifted copper by 7% on Friday in its biggest one-day rally since 2009, while oil rose by more than 4% from which the Canadian Dollar benefits.
Additionally, four Federal Reserve policymakers on Friday indicated they would consider a smaller interest rate hike at their next policy meeting, sounding less hawkish than Chair Jerome Powell. There are several Fed officials that are scheduled to speak this week as well. Markets are now narrowly leaning toward a half-point rate hike next month to 4.25-4.5% which can support CAD vs. the US Dollar. Two-year Treasury yields, which are most sensitive to inflation and interest rate expectations are below the highs of the day but remain 1% higher at 4.711%, although now well below 4.88% and Friday’s peak.