By Ketki Saxena
Investing.com – The Canadian Dollar continued to gain against its U.S. counterpart in another risk-on session following additional indicators that may imply that U.S. inflation has peaked and a further easing labour market. Both pieces of data raised bets for a 50 bps rather than 75 bps hike from the Federal Reserve in September, pressuring the greenback. The Canadian dollar meanwhile continued to be buoyed by the same positive investor sentiment that pressured the safe-haven greenback and gained further support from
At 3:30 p.m ET, the USD/CAD Pair was at C$1.2761 to a greenback, down 0.10% in the day’s trading, and with the day’s range of 1.2728 - 1.2792.
FX Streets notes that “The USD/CAD slides towards the 200-day EMA on Thursday due to a risk-on impulse propelled by additional US inflation data, which completes the puzzle alongside consumer inflation, leaving to the Fed, the call if US inflation has already peaked or not. Also, the labour market began to show signs of moderation. All those factors weighed on the greenback.”
The U.S. Producer Price Index data released today showed PPI increased 9.8% YoY, still red hot but lower the 11.3% in June and market expectation for a 10.4% reading. The data led to money markets further paring back expectations for a 75 basis point hike, which receded significantly following yesterday’s US CPI Data.
The prospect of a relatively more doveish Fed was also supported by indications of an easing labour market, the maintained robustness of which is part of the Fed’s de-facto dual mandate. US Initial Jobless Claims for the week ending on August 6 rose largely in line with economist expectations, but sharply higher for a second-consecutive week.
Meanwhile, the Canadian dollar gained as “investors moved towards riskier assets in the FX space, namely the antipodeans and commodity-linked currencies, like the loonie”, notes FX Street.
The Canadian dollar was also supported by gains in crude for the second consecutive day, as receding rate hike bets eased worries of recession-driven demand destruction, and as the typically bearish International Energy Agency raised its outlook for 2022 oil demand (in contrast to OPEC+), noting that soaring international prices for natural gas could prompt more energy consumers to switch to oil for winter heating.
In terms of what’s next for the pair, traders should gain direction from tomorrow’s University of Michigan Consumer Sentiment, including inflation expectations. Major Canadian economic events due include CPI data expected next week.