CAD
After an initial post-election reaction that we felt was at odds with fundamentals, the subsequent USDCAD rally better reflects the risks facing the loonie in our view. Even so, a 0.7% climb for the pair is a modest move when considering the downside impact that tariffs could have on North American trade, a fact that we think warrants the loonie trading with an even bigger discount than is currently priced in. With this in mind, we see further upside risks for USDCAD today. The pair is currently trading at highs not seen since October 2022. We think a return to levels last seen in early 2020 would be a fairer reflection of underlying conditions and risks.
USD
The dollar’s grind higher continued on Monday, with the DXY index gaining almost 0.5% to start the week. That momentum has carried forward to today as well, with another leg higher for the greenback taking DXY back to levels last seen in early July. All this comes ahead of the week’s main data event – US CPI, due out tomorrow at 13:30 BST. Moreover, given expectations for a 0.3% MoM core inflation print, likely accompanied by FOMC commentary where we think odds favour a more hawkish tilt, there are further upside risks for the dollar on the horizon. Indeed, the first test of this thesis actually comes this afternoon, with four Fed speakers, most notably Governor Waller, all set to make appearances. Taken together with an NFIB survey, and Senior Loan Officer Opinion Survey, which are both scheduled for publication today too, we see little in the short term that looks likely to de-throne King Dollar.
EUR
With the dollar in the driving seat, domestic data is having only a marginal impact on the euro so far this week. We see little risk this changes today either. ZEW survey expectations are the main point of note for the bloc, though we doubt this is likely to tell a story much different to other recent prints – that growth and sentiment remain weak, and a turnaround looks likely in the short to medium term. Similarly, odds favour ECB speakers also being a sideshow today, with meaningful interventions looking unlikely. With this in mind, we expect the recent EURUSD softening trend to continue – albeit at close to 10.6, the pair is now starting to look a little oversold in our view.
GBP
While the US is the main focus of the week, today’s UK labour market data offered a small distraction for sterling traders. Looking at the headlines, unemployment jumped 0.3pp to 4.3%, beating expectations for a 4.1% print. But this was offset by wage growth that also exceeded consensus forecasts, rising from 3.9% 3m/YoY in August to 4.3% in September. All told, we think there is good reason for the BoE to look through both sets of surprises. The former on data quality concerns, the latter because of softer details below the surface. As such, while sterling has softened marginally, we doubt this latest round of data does much for MPC thinking, meaning little scope for movement in rate cut expectations, which should put a floor on GBP downside.
This content was originally published by our partners at Monex Canada.