– WTI surges 34% since June.
– US CPI forecast to rise 3.6% y/y compared to 3.2% in July.
– US dollar maintains minor bid ahead of inflation report.
USDCAD open: 1.3557-61, overnight range: 1.3548-1.35764, close 1.3555, WTI $89.39, Gold, $1911.28
The Canadian dollar started today’s session as the best-performing G-10 currency against the US dollar. The outperformance is due to steadily rising oil prices, which gained additional support following the release of the OPEC Monthly Oil Market Report.
The report warned of a growing supply and demand imbalance. On the supply side, there are indications of increasing production, as highlighted by the forecasted growth in non-OPEC liquids supply for both 2023 and 2024. The main drivers behind this supply surge include several key oil-producing nations such as the United States, Brazil, Norway, Kazakhstan, Guyana, and China. These countries are expected to contribute significantly to the rising supply levels.
Conversely, on the demand side, while there are projections of continued growth, particularly in the non-OECD region, it’s essential to emphasize that this demand growth might not be sufficient to offset the supply increase. WTI rallied from $87.22/b yesterday to $89.84/b in NY today.
The OPEC report was merely the opening act ahead of the headlining US inflation report today. Hot, cold, or tepid?
Those are the three outcomes for today’s US inflation report, which is having an outsized influence on global markets because it is released just a week ahead of the Federal Open Market Committee (FOMC) meeting. CPI is expected to have risen by 0.6% in August compared to 0.2% in July. The more important core-CPI is expected to remain unchanged at 0.2%. The core is key. A 0.2% month-on-month result suggests the Fed will leave rates unchanged, but at 4.3% year-on-year, inflation is still more than twice the Fed’s target and a rate hike in November or December will not be ruled out.
EURUSD drifted in a 1.0728-1.0765 range with traders looking ahead to tomorrow’s ECB meeting where the chances of a rate hike or a pause are evenly split.
GBPUSD dropped to 1.2441 from 1.2502 and after UK GDP contracted 0.5% in July, well below the forecast for a 0.2% decline. In addition, Industrial and Manufacturing production reports were weak.
USDJPY rose from 147.01 to 147.45 on the back of the 10-year US Treasury yield climbing to 4.30% from yesterday’s close of 4.264%.
AUDUSD drifted in a 0.6399-0.6424 range with prices tracking general US dollar sentiment.