USD / CAD – Canadian Dollar in limbo

– Fed Chair Powell raises rate cut hopes.

– RBNZ flips the switch and turns dovish.

– US dollar drifts lower in uninspired trading.

USDCAD: open 1.3641, overnight range 1.3628-1.3643, close 1.3637, WTI $81.66, Gold, $2372.06.

The Canadian dollar is drifting aimlessly and unable to get any traction in either direction. It is not alone. Most of the major G-10 currencies are suffering a similar fate. Things may change tomorrow with the release of the June inflation data for the US. Headline CPI is expected to drop to 3.1% y/y from 3.3%, although that news will be negated if Core CPI remains unchanged at 3.4% as expected.

Fed Chair Jerome Powell gave a tiny bit of hope to those expecting rate cuts as soon as September. In Day 1 of his testimony to Congress, he highlighted the progress made toward the Fed’s 2 percent inflation goal while acknowledging that inflation remains above target. He also spoke about the labor market, noting that the labor market remains strong but has cooled from the overheated conditions observed during the peak of the economic recovery post-pandemic. Powell also warned against delaying adjustments too long, which could dampen economic activity and employment, and that some traders thought that comment improved the odds for an earlier-than-expected rate cut.

A flock of Fed officials, including Governors Michelle Bowman and Lisa Cook as well as Chicago Fed President Austan Goolsbee, will expound on the US rate cut debate today. Jerome Powell is back in front of Congress again today for Day 2 of his testimony.

EURUSD traded uneventfully in a 1.0811-1.0826 band. The single currency was underpinned by Mr. Powell’s comments yesterday but gains were limited due to the French politics and the make-up of the incoming government.

GBPUSD inched higher in a 1.2783-1.2812 range. Traders are sidelined ahead of tomorrow’s UK data dump which includes May GDP, Industrial Production, and Manufacturing Production.

USDJPY inched higher in a tight 161.26-161.62 band. Traders ignored Japanese PPI data (actual 0.2% in June, forecast 0.4% increase and 0.7% in May).

AUDUSD traded in a 0.6732-0.6751 range with gains limited by soft Chinese inflation data and support from earlier-than-expected US rate cut hopes.

NZDUSD traded negatively in a 0.6065-0.6133 range thanks to a slightly dovish RBNZ rate outlook. The RBNZ left rates unchanged but dropped talk about the risk of rate hikes

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