CAD
This afternoon’s Canadian CPI release, published at 13:30 BST, is arguably the major data release of note today. We expect to see headline inflation drop to 1.8% YoY, falling below the 2.0% BoC target for the first time since 2021. While markets and the BoC are likely to take a greater steer from core-median and core-trim CPI, which should stabilise just above 2.0% in the September data, we think the devil is likely to be in the detail of today’s report, with several points to look out for. Specifically, once stripping out the impact of rate-sensitive components, Canadian inflation was left hovering just above 0% in August, while short-term inflation momentum turned negative on these measures. Further falls across both would point towards an increasingly worrying slowdown in price growth becoming embedded in the Canadian economy. While not likely to prompt a move to 50bps by the BoC this month, we do see growing odds that this could translate into accelerated easing over future meetings, posing downside risks for the loonie.
USD
A holiday-disrupted Monday saw relatively light price action across FX markets. The dollar nevertheless made gains, helped by comments from the Fed’s Waller’s overnight, suggesting that the FOMC should move at a deliberate pace. While we still think the FOMC should cut rates twice more by year-end, markets are increasingly pricing risks of only one 25bp move. This is supporting some modest greenback upside, at least temporarily. A light data calendar should keep dollar price action limited today too, with Empire manufacturing and inflation expectations the key events of note. Rather the focus should be on Canadian CPI published this afternoon, albeit with one eye on Thursday, when US retail sales and an ECB decision are due.
EUR
1.09 is the number in focus for EURUSD traders this morning. Having made a brief charge at this key psychological level yesterday, markets are having another go through early trading. While there is little data of note driving the move, outside overnight comments from the Fed’s Waller, we nevertheless think that this move lower for the pair better reflects fundamentals for the pair. Both growth and rate differentials support EURUSD upside, helped by a haven bid on Middle East tensions and US election risks. As such we would not be at all surprised to see EURUSD consolidate any break below 1.09 if realised today.
GBP
This morning’s labour market data is the first of three tier-one prints for the UK this week. All told, it tilted hawkish too, albeit not by enough to offer much impetus for sterling. Average weekly earnings rose 3.8% 3m/YoY in August, a drop from the 4.0% rate seen the month prior, but above market expectations that had projected 3.7% growth. Granted, once stripping out bonuses, earnings growth fell from 5.1% to 4.9% 3m/YoY, consensus expectations. But when set against an unemployment rate that dropped 0.1pp to 4.0%, and 3m/3m employment change of 373k, up from 265k in July – this was a set of prints that should keep the BoE wary at first glance. It might be a little surprising then to see only a marginal reaction in currency markets. The pound is trading down against the dollar so far this morning, and up less than one-tenth of a percent against the euro. As we see it, this is in part a result of a lack of confidence in UK labour market statistics, which has been afflicted with reliability issues as of late. But it is also a function of market focus switching to the October 30th budget, seeing this round of data prints discounted accordingly. If we are right, this should also mean that the week’s remaining data prints will have only a muted reaction too, keeping the focus on month-end, and fiscal policy developments.
This content was originally published by our partners at Monex Canada.