- Crude oil consolidates gains following Tuesday’s rebound.
- Annual Consumer Price Index in Canada is expected to tick up to 2.1% in May.
- US Dollar Index moves sideways above 97.50 ahead of FOMC meeting.
Despite the broad-based USD strength on Tuesday, the USD/CAD pair posted losses as the rallying crude oil prices helped the commodity-related loonie outperform its major rivals. Ahead of the key events of the day on Wednesday, the pair seems to be having a difficult time finding its next direction and was last seen trading at 1.3375, where it was virtually unchanged on a daily basis.
The improved market sentiment on news of the U.S.-China trade talks resuming at the G20 with both sides voicing their willingness to move toward an agreement helped crude oil prices record decisive gains on Tuesday and the barrel of West Texas Intermediate added more than 4% on a daily basis to close near $54. Ahead of the Energy Information Administration’s (EIA) weekly crude oil stock report, WTI is trading near $53.90.
In the early American session, inflation data from Canada will be looked upon for fresh impetus. Markets expect the Consumer Price Index (CPI) to come in at 2.1% on a yearly basis. A lower-than-expected reading could weigh on the CAD as it would allow the Bank of Canada to stay patient with regards to further rate hikes.
Later in the day, the FOMC will release its policy statement alongside the updated projections and Chairman Powell will be delivering his remarks and responding to questions from the press.
“Our base case is that the Fed will cut interest rates three times by Q1 2020, with the first 25bp cut occurring at the July meeting. Given the extent to which market pricing has moved, it looks difficult for the Fed to ‘out-dove’ what is already priced in (three full 25bp cuts by Q1 2020). With that said, markets often take more lead from the direction in FOMC signalling rather than the scale of the shift per se,” ABN AMRO analysts said previewing the event.
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