CAD
Traders turned bearish on the loonie through Monday’s session, a move that saw USDCAD climb a quarter of a percent to start the week. Whilst the loonie’s slide arguably belied cross-asset developments, where equities in particular posted gains, it was in keeping with a broader sell-off for more risk-sensitive G10 currencies in response to US political developments and news of policy easing in China. That said, we think the move for USDCAD could extend in the coming days too. Markets currently price a 90% chance that the BoC cuts rates tomorrow – we think this should be a done deal. If we are right, then growing rate differentials between Canada and the US should see modest further downside pressure on the loonie, sufficient to see USDCAD settling around 1.38 by week-end.
USD
After the weekend’s political drama that saw President Joe Biden drop his re-election bid, Kamala Harris has moved swiftly to consolidate her position as the presumptive nominee of the Democratic party, securing the backing of most major party figures as of this morning. Now, with the nomination all but wrapped up, markets are left to ponder what a Harris Presidency would mean, and what these recent events do for the prospects of a Trump victory. All told, the answer seems to be not too much, at least so far, based on both betting markets and the reaction of the dollar. The former has seen chances of a Trump win ease modestly, while the latter softened at the margin. But, with both moves proving small, traders seem inclined to watch and wait before passing judgment. Given this, and together with a distinct lack of other market-moving events scheduled for today, it looks likely to prove a quiet session for the broad dollar barring any further political surprises.
EUR
A light calendar gives markets little to trade in advance of tomorrow’s PMI readings, with July consumer confidence the only data scheduled for release today. With this in mind, the focus for euro traders is likely to be on ECB Chief Economist Phillip Lane, due to speak this morning. While we doubt Lane will offer further insight than President Lagarde did last week, where there are risks, we think they are skewed towards a stronger steer in favour of a eurozone rate cut in September. As such, while we anticipate a quiet session for the euro today, the balance of probabilities favours the single currency softening at the margin before tomorrow’s more significant data prints are unveiled.
GBP
Sterling’s lack of direction through Monday trading looks set to continue as a theme. There are no data releases scheduled in advance of tomorrow’s flash July PMIs, and no BoE speakers set to hit the airwaves either. All told, this should leave the pound to drift sideways today. That said, one story we think is of note, if not immediately market moving, comes from reports that the new Chancellor Rachel Reeves is considering an inflation-busting 5.5% pay rise for some public sector employees. If delivered, this would set a benchmark against which other pay rises are considered across the economy, increasing upside wage pressures just as it is starting to look as if the BoE has managed to get inflation back under control. While the details would matter, such an eventuality could see the MPC take a more hawkish tone in the coming months, supporting further sterling upside, but likely at the cost of a softer growth outlook over the medium term.
This content was originally published by our partners at Monex Canada.