CAD
Neither SEPH employment data nor the CFIB business survey proved market moving for USDCAD on Thursday. Today, however, July GDP figures are likely to be somewhat more impactful. Traders are looking for annual GDP growth to rise to 1.4% YoY, and 0.1% MoM, while our base case remains that weak growth is likely to weigh on Canadian inflation, prompting rapid easing from the BoC. As such, even though retail sales for the month delivered a strong beat to expectations, we are inclined to take a greater steer from the manufacturing PMI, which slumped. Although low conviction, that means we favour a modest undershoot relative to expectations later today, prompting some loonie weakness.
USD
After flatlining through much of Thursday trading, the dollar saw some notable swings late evening and overnight, with the DXY index down 0.5% this morning as a result. This comes despite news that 2Q GDP was unchanged at 3.0% QoQ annualised in yesterday’s final reading. Perhaps more significantly, this was accompanied by a 1.9pp upward revision to the savings rate, which now stands at 5.2% in Q2. A meagre savings rate had been highlighted as a significant risk factor for growth in recent months. With yesterday’s upward revision in hand, we are inclined to think that imminent US recession risks look even more overstated this morning. Granted, this is having little impact on the dollar as yet. But it does support our case for a more hawkish Fed easing path, which should offer greenback upside moving forward.
For now, though, it is the yen that is catching the attention and driving price action for the broad dollar this morning. USDJPY is down over 1% on news that former Defence Minister Shigeru Ishiba has won the leadership of Japan’s ruling Liberal Democratic Party. Later today, however, the spotlight should return to the US, with personal income, personal spending, and core PCE in focus for traders. That said, with the latter expected at 0.2%, the dollar should be left relatively undisturbed heading into the weekend after a busy start to Friday.
EUR
Flash CPI data for France and Spain, inflation expectations, and a speech by ECB Chief Economist Phillip Lane should be plenty to keep euro traders entertained before the weekend. The first on these – French CPI has already proven a significant market mover this morning, undershooting expectations for a 1.6% YoY print to land at just 1.2%. That said, this is very much in line with our base case for the bloc. As we have noted previously, weak growth should weigh on inflation, and the euro in turn. Given this, a 0.4% fall for EURUSD in early trading is hardly a surprise, with more weakness likely in store if the softness seen in French data is repeated across other eurozone economies.
GBP
CBI sales data is the only release of note to end the week for sterling. That said, it should prove a non-event, normally overlooked by traders who are likely to have their attention focused elsewhere in any case. Instead, risk conditions and events elsewhere should be the key drivers for sterling today. Indeed, this morning’s French CPI data has already seen some decent gains for GBPEUR, with the pair threatening the key 1.20 level.
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