U.S. Dollar Highlights
USD stable due to geo-political risks causing safe haven demand. Congress approved legislation supporting protesters in Hong Kong and China threatened to retaliate. Global equities are lower while U.S. Treasuries are higher due to the soft risk environment. Meanwhile, Retail Sales in September declined 0.3% (versus 0.3% gain expected) and this was the lowest in seven months. Households reduced spending on motor vehicles, building permits and online purchases. Manufacturing is also suffering (due to the trade dispute) and this will ensure the Federal Reserve cuts interest rates again (next month or in December). All eyes on Housing Starts and Building Permits for September today; Industrial and Manufacturing Production also available today.
Canadian Dollar Highlights
CAD remains defensive due to fluctuating oil prices and trade developments. Consumer Prices in September was 1.9% (versus 2.1% expected and same as previous). Lower gasoline prices continue to affect the inflation rate; meanwhile, Core inflation was 2.1% (from 2% in August and as expected). The Bank of Canada’s target is 2% for inflation and this will keep them dovish and remain stable regarding interest rates (the next meeting is October 30). Manufacturing Sales for August expecting 0.6% gain today.
EUR remains vulnerable due to Brexit news and the European Summit started in Brussels yesterday. The focus will be on the new Brexit proposal with the departure deadline in two weeks. Meanwhile, Eurozone Inflation was 0.8% in September (versus 0.9% expected and the lowest level in three years). The central bank’s target is also 2% as exports contracted last month to increase concerns about a recession. Energy prices also decreased, and Core Inflation remained at 1% (same as previous).
GBP stronger (and reached a five-month high), but markets are concerned that a formal Brexit agreement will not be finalized during the summit. The Northern Irish border continues to be the main issue as Prime Minister Boris Johnson’s latest proposal did not satisfy the Northern Irish Democratic Unionist Party. Johnson will need their votes to pass a legal text through Parliament. Meanwhile, Chief negotiator Michel Barnier is confident a deal will be finalized soon. Markets are prepared for Johnson to request an extension of Article 50. Consumer Prices for September was 1.7% yearly (lower than expected 1.8%). Bank of England Governor Mark Carney said a rate cut is preferred in case of a no-deal Brexit.