• US June PCE core inflation Y/Y: +1.9% vs 2.0% exp
  • Canadian May GDP M/M: +0.5% vs +0.3% exp
  • USDCAD falls to test 1.30 handle

As the 2-day Fed meeting begins the latest inflation figures are sure to be in focus, and a lower than expected print in the measure said to be preferred by the bank could well impact the discussion. The US June PCE core inflation came in at +1.9% Y/Y which was less than the 2.0% expected and inline with the prior reading after a downwards revision from 2.0% previously. The deflator was also less than forecast, showing a print of 2.2% vs 2.3% exp. 

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There’s a growing gap between the core CPI and PCE core in year-on-year terms. Today’s lower than expected PCE core could be seen to indicate a possible pullback in CPI going forward. Source: XTB Macrobond

At the same time as the US data, we also got the most recent growth figures from Canada, which showed a better than expected reading. In M/M terms for May the CAD GDP showed +0.5% vs +0.3% expected and a prior reading of +0.1%. In Y/Y terms the beat is arguably more impressive at +2.6% vs 2.3% expected (prior reading was 2.5%). There’s a strong correlation between GDP industry in YoY terms and Oil extraction, with a recent decline in the latter weighing on the former. Despite this the overall growth picture remains fairly healthy however.

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 GDP in industry in YoY terms and Oil extraction have exhibited a fairly close relationship for much of this decade. Source: XTB Macrobond

Taken together the softer US data and better Canadian caused an understandable negative reaction in the USDCAD with the cross dipping back below 1.30 and retesting Monday’s 7-week low. Despite the initial reaction there’s been limited follow through but it could be worth keeping a close eye on where the market ends the dayThe pair has fallen below the D1 Ichimoku cloud in recent days, a move that could be seen to signal a change in trend. 3 of the past 4 occasions that price has breached the cloud have led to sustained moves going back to the end of last year. 

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 USDCAD has fallen below the Ichimoku cloud on D1 – a possible indication that the trend has now turned lower for this pair. Source: xStation