USD/CAD marches steady around 1.2880, after US manufacturing data

July 2, 2022

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The USD/CAD ended the week nearly flat amidst a risky’s Friday session.
Canada’s May GDP contracted by 0.2%, on its preliminary studying, a headwind for the CAD.
US manufacturing data confirmed indicators of slowing down; will the Fed gradual its tightening tempo?

The USD/CAD pares a few of Thursday’s losses after reaching a weekly excessive of around 1.2960s however retraced beneath 1.2900 because the dollar weakened forward into a protracted weekend, courtesy of the US Independence day. At 1.2882, the USD/CAD information minimal positive factors of 0.08% and finishes the week with losses of 0.09%.

Sentiment shifts, and the USD/CAD retreats from weekly highs to acquainted ranges

US equities completed with strong positive factors after the S&P 500 slumped by 20% since its peak in 2022. US manufacturing data, as reported by the Institute for Supply Management, launched June’s Manufacturing PMI at 53.0, decrease than the 54.9 anticipated prior at 56.1. Investors’ response was a counter-cyclical, shopping for the US greenback as a safe-haven play as fears of a US and a worldwide recession elevated.

On the USD/CAD aspect, the pair rallied sharply, from around 1.2900s to 1.2966, amidst falling US Treasury yields, as bond merchants purchased US Treasuries, which despatched short-term US bond yields plunging greater than ten foundation factors, within the case of 2s, 5s, and 10s. The US 10-year benchmark observe finalized around 2.889%, down twelve foundation factors and 70 bps from the 2022 peak close to 3.5%.

Data-wise, throughout the week, the Canadian docket revealed a GDP contraction of 0.2% MoM on May’s preliminary studying, whereas April was downward revised from 0.7% to 0.3% MoM. The data might deter the Bank of Canada (BoC) from climbing charges aggressively, although, on the time of writing, Short Term Interest Rates (STIRs) markets have priced in a 92% likelihood of a 75 bps price hike within the July 13 assembly.

On the US entrance, June’s Consumer Confidence reported by the Conference Board, downtick in direction of 98.7, lacking expectations of 100.4, and trailed May’s 103.2. Furthermore, US inflation, as measured by the Personal Consumption Expenditure (PCE), and the Fed’s favourite gauge of inflation for May, rose by 6.3% YoY, decrease than the 6.7% estimated. Meanwhile, the so-called core PCE, excluding risky gadgets, rose by 4.7% YoY, decrease than foreseen and fewer than April’s 4.9%.

The week forward, the Canadian financial calendar will characteristic S&P Global Manufacturing PMIs and Employment data. On the US entrance, the docket will reveal the ISN Non-Manufacturing PMI for June, the US Federal Reserve’s final assembly minutes, and the US Nonfarm Payrolls report for June.