The U.S. Dollar is trading with a mixed tone ahead of the CPI (Consumer Price Index) later in the trading day, with the commodity currencies gaining the most and the Euro and JPY the less. CAD, AUD, and NZD especially, enjoyed a nice rally in the first two trading days of the week so far on the base of various factors.
Oil being steady above the $50 mark keeps a bidding tone on the Canadian dollar, and as a consequence, the USDCAD is trading around 1.3050 area, retreating from around 1.32 levels reached last week. Chinese data, as well as monetary policy minutes in Australia, made the Australian dollar a darling at the start of the week, especially against the USD, as the AUDUSD pair is knocking at the 0.77 gates, after last week it was trading around 0.7550.
Last but not least, the NZDUSD pair surged over one hundred pips and the NZD even outpaced the AUD as the cross, AUDNZD is dropping steadily. Today the GDT price index will strongly influence the NZD and it will be interesting to see if the current gains can be sustained.
Inflation was released in the U.K. a bit earlier today and we saw a strong pickup, mainly because of the sharp drop in the British pound. As a consequence, the GBPUSD pair bounced quite nicely, and if the U.S. inflation is about to disappoint, I wouldn’t be surprised to see the rally continuing above the 1.23 mark.
The most important event of the trading week is still ahead of us, namely, the European Central Bank (ECB) interest rate decision and press conference. Despite the fact that inflation in the Eurozone seems to pick up a bit, it is expected that Mr. Draghi will keep a dovish tone, highlighting the possibility of an extension in the QE program in 2017.
However, there are already signs that the ECB may taper earlier than the market expects and if we do see some continuing trend in inflation, the market will downplay any downside in the Euro pairs. Speaking of the Euro pairs, the EURUSD regained the 1.10 level lost last Friday and most likely until Thursday market will hover around it.
Bank of Canada is due tomorrow and it is expected to be a non-event as it seems that oil price is influencing the way the CAD moves rather than monetary policy. All in all, an interesting week ahead of us, with the Euro about to take center stage starting with Thursday.