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Loonie improves as US CPI disappoints

Posted on: August 11, 2017

USD is selling off this morning as US CPI came in slightly below expectations, posting gains of 0.1%, compared to estimates of 0.2%. Hourly Earnings also missed by a tick in a disappointing Friday for US economic data. Diving into the details, the miss is not significant, meaning this will not likely sway the Fed’s one way path for a hike - although we are now pricing just 35% for a third rate hike this year. Later this morning we hear from Kaplan and noted dovish dissenter Neil Kashkari to head into the weekend.

In contrast to our neighbors down south. The Bank of Canada has a better sentiment in leaning towards additional tightening of its monetary policy program, possibly before the end of 2017. A hike of 0.25+ was seen in July and overnight index swaps are pricing in a 78% probability of an October hike. Canada surprised world economies by posting robust annualized GDP numbers of 4.6%, coupled with strong job growth. Despite a clearly evident growing economy and labor market, inflation is still lagging and could quite possibly be the culprit for a delay’s in policy decisions. USDCAD is testing support around 1.2650/1.2660 at the time of writing as the weak US data offsets weaker oil prices.

Across the G10, the JPY remains the best performer as the risk-off sentiment continues to prevail. Despite his staff trying to smooth out the sharp edges of his "fire and fury" comment, President Trump doubled down yesterday suggesting that maybe his initial comments were not strong enough.

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