CAD
The Canadian Dollar’s path to September’s interest rate decision will be made clearer this week. Notwithstanding the Canadian economy’s sensitivity to central bank policy across the border, the inflation data this week should provide the final piece of the puzzle for a September cut. Tuesday’s headline CPI growth is forecasted at 2.4% YoY down from 2.7% in June. Furthermore, core median CPI is also forecasted to drop to 2.5% from 2.6%. Whilst the short-term impact to the Loonie may be limited, the next move will be driven by Macklem’s guidance in September.
USD
The USD starts the week continuing its recent trend of softness. The USDXY, which measures the USD against a basket of currencies, is hovering just above year-to-date lows. The move lower is, of course, the clearest reflection of a faster than anticipated interest-rate cut path. Markets rarely price interest rate decisions as evenly as they are currently. The meeting at Jackson Hole this week will be closely monitored for any signals of cuts and dovish language. With US inflation and retail sales data showing the resilience of the US economy, the potential 50bps cut before year-end is tampering any long-term USD strength. The meeting in Jackson Hole will be held from Thursday to Saturday with Fed Chair, Powell, delivering an address on Friday. Other key data releases for the USD this week include Fed minutes on Wednesday evening and employment and PMIs on Thursday. The calmer environment for currency markets may be nearing an end.
EUR
Whilst the EUR has rallied over 2.5% against the USD since August 1st it will be sensitive to economic data releases. Markets will be looking to Inflation data on Tuesday along with Wednesday’s PMI data for a sense of the performance of the Eurozone. Since the ECB was the first to cut rates in June the Euro has posted highs against the USD and GBP. Whilst backward-looking, Wednesday’s release of the Monetary Policy Meeting account from July will give markets a sense of how the central bank looks to guide the Eurozone economy through the second half of the year.
GBP
Over the course of the last month GBP has moved over 2% against its two main counterparts, the USD and EUR. Whilst the BoE’s decision to cut rates at the start of the month has tempered gains, Sterling has been supported by strong economic growth and relative political stability. Wednesday’s Composite PMI data and Friday’s Consumer Confidence are the only data releases of note; therefore, GBP moves will likely be limited to its counterparts’ reactions.
This content was originally published by our partners at Monex Canada.