Canadian Dollar Update – Canadian dollar awaiting catalyst

USD/CAD Open: 1.3263-67, Overnight Range: 1.3247-1.3280,  Previous Close: 1.3280

WTI Oil open at $73.30 and gold open at $1,937.68. US markets are higher today.

For today, USD resistance is at 1.3284. Support is at 1.3220.

• Canadian dollar biding time until BoC meeting Wednesday.
• Risk sentiment improves helped by China stimulus.
• US dollar consolidating losses.

The Canadian dollar is currently trading within a well-defined range following Friday’s domestic employment data.

The stronger-than-expected Canadian employment report has led many to believe that the Bank of Canada will raise interest rates to 5.0% at Wednesday’s meeting. However, the focus has now shifted to Wednesday’s US inflation report. If June’s CPI data shows a significant drop, it could indicate that the Federal Reserve’s rate-hiking cycle is nearing its end.

These expectations have reinforced positive risk sentiment and caused the US dollar to weaken against major currencies since the market opened on Monday. Furthermore, positive risk sentiment received an additional boost when China announced plans to extend last year’s 16-point real estate developer support plan until the end of 2024. These targeted measures, along with the People’s Bank of China’s resistance to a declining CNY, have further contributed to the negative sentiment surrounding the US dollar.

Meanwhile, interest rates in other G-10 countries are still expected to rise. Analysts are concerned that the Bank of England may raise its benchmark rate by 50 bps at the upcoming July meeting, particularly after today’s UK wage data showed higher-than-expected growth. As a result, GBPUSD has continued its upward trend, rising from 1.2859 to 1.2933.

EURUSD has also extended its gains from yesterday, climbing from 1.0998 to 1.1026. The break above the resistance level at 1.1000 indicates the potential for further gains to 1.1110, primarily driven by the broad weakness of the US dollar. Interestingly, these gains have occurred despite the worsening economic sentiment reflected in the German and Eurozone ZEW data.

USDJPY, on the other hand, has been on a downward slide since last Thursday, dropping from 141.45 to 141.32 in early NY trading today. This decline can be attributed to improved global risk sentiment resulting from the latest Chinese economic support measures and the decrease in the US 10-year Treasury yield, which has fallen from 4.09% on Monday to 3.96% today.

In the Asian market, AUDUSD traded within a range of 0.6663-0.6694 overnight as it recovered from Monday’s losses, supported by positive domestic data. The NAB Business Confidence Index showed a reading of 0 compared to May’s -0.4%, while Business Conditions improved from 8 to 9. Westpac Consumer Confidence remained in line with expectations at 2.7%. Traders are now eagerly awaiting remarks from RBA Governor Philip Lowe.

As for NZDUSD, it is currently at the lower end of its range between 0.6184 and 0.6223 as market participants prepare for tomorrow’s RBNZ monetary policy meeting. The general expectation is that the RBNZ will leave interest rates unchanged.

Lastly, it is worth noting that there are no significant US or Canadian economic reports scheduled for release today.