The USD’s performance has become increasingly more mixed each morning this week. This has been helped by long USD position covering and lower US yields relative to their highs immediately after last week’s FOMC. However, a relatively ‘soft’ EUR is keeping the DXY marginally above 80, and this is placing a bit of a floor underneath the USD. With the latest twist in ECB rhetoric, FX investors will probably wait patiently for the release of Eurostat’s Flash CPI estimate on Monday, and this should keep EUR rallies capped between 1.380 and 1.3875 for now.
USDCAD maintained its offered tone this morning ahead of US durable goods data due in a short while. What is surprising is how much USDCAD has deviated from the 5yr swap rate differential in this latest move. Our economists expect a sub-consensus 0.1% MoM print for ex-transport durables, but a better-than-expected reading today should keep the pair well supported in the 1.113-1.115 range, given the aforementioned divergence.
The one caveat in all of this appears to be the strong AUD, which some CAD players seem to be watching closely. The question is ‘why are they?’ Although AUD and CAD moves vs. the USD display cointegrated properties over time, their daily moves don’t appear to be highly correlated with one another. Short-term swap rate differentials also suggest levels at 1.00 and above in AUDCAD are slightly ‘rich’. Perhaps budding expectations for more ECB easing and perceived success in RBA & BoC attempts to lift headline inflation are keeping short AUD & CAD investors on guard a bit.
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BMO