USD / CAD – Canadian Dollar takes a dive.

– Traders reduce Fed rate cut bets.

– Upcoming FOMC meeting will limit trading activity.

– US dollar consolidating Thursday’s gains.

USDCAD: open 1.3528-32, overnight range 1.3528-1.3550, close 1.3535, WTI $80.83, Gold, $2171.62

The Canadian dollar dropped sharply yesterday following hotter than expected US Producer Price data. Core-PPI rose 2.0% (forecast 1.9% y/y), which was unchanged from January but disappointed traders expecting to see steadily falling inflation rates. Initial Jobless claims were lower than expected, which further soured rate cut sentiment.

The news sparked a jump in the US 10-year Treasury yield to 4.30% from 4.192%, which fueled a greenback rally across the board.

The Canadian dollar is also suffering from concerns that the rising government deficit will lead to higher corporate taxes. If so, it will divert foreign investment to more tax-friendly countries and exacerbate Canada’s already sluggish growth.

West Texas Intermediate prices hung on to Thursday’s gains and traded in a $80.50-$81.25/b range, supported by some reports predicting increased crude demand in 2024 due to improved global growth.

EURUSD is trading in a 1.0873-1.0900 band due to modestly bullish short-term EURUSD technicals. However, a recent spate of dovish comments by ECB policymakers and the prospect of fewer Fed rate cuts in 2024 than previously expected are limiting gains.

GBPUSD is steady in a 1.2730-1.2759 range. UK public expectations for inflation data (actual 3.0%, November 3.3%) support easier BoE policy; however, a rate cut is not on the agenda for next week’s monetary policy meeting.

USDJPY spiked from 147.44 to 148.36 on Thursday and traded with a bullish bias in a 148.03-148.84 band overnight. Surging US Treasury yields fueled the rally as the 10-year yield rose from 4.19% to 4.30%. Traders are looking ahead to next week’s Bank of Japan monetary policy decision. Quite a few analysts believe the BoJ will end its negative interest rate policy and hike rates. Others believe a rate hike will not happen until April.

AUDUSD drifted aimlessly in a 0.6552-0.6585 range. Traders expect that the Reserve Bank of Australia will leave rates unchanged next week.

Michigan Consumer Sentiment (forecast 76.9) and Canadian Housing Starts are on tap.

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