Focus on Canada’s CPI rates and RBNZ’s decision

The USD edged higher yesterday against its counterparts, while at the same time the slight strengthening of the greenback tended to weigh on gold’s price forcing the precious metal’s price to retreat from the new record high levels it had reached yesterday. US stock markets on the other hand sent out some mixed signals.

North of the US border, on a macroeconomic level, the highlight of the day is expected to be the release of Canada’s CPI rates for April and the rates are expected to slow down. Characteristically, the headline CPI rate is expected to slow down to 2.7% yoy if compared to March’s 2.9% yoy. Should the rate slow down as expected or even more, we may see the CAD losing some ground, as it could enhance the market’s expectations for a faster rate cut by BoC. On the other hand, should the rates fail to slow down or even accelerate, taking the markets by surprise, the release may add pressure on BoC to keep rates high for longer and thus provide asymmetric support for the CAD.

USD/CAD seems unable to break clearly the 1.3610 (S1) support line and yesterday edged higher. In its upward movement the pair interrupted the downward motion that characterised its direction since the 8 of May. Furthermore, the RSI indicator remained near the reading of 50 implying a relative indecisiveness on behalf of market participants in regards to the direction of the pair’s price action. Hence we tend to switch our bearish outlook in favour of a sideways motion bias. Should the bears regain control over the pair’s direction, we may see USD/CAD, breaking the 1.3610 (S1) support line thus paving the way for the 1.3460 (S2) support level. For a bullish outlook the bar is pretty high, as we would require the pair to break the 1.3755 (R1) resistance line with the next possible target for the bulls being the 1.3895 (R2) resistance level.

During tomorrow’s Asian session, we note the release from New Zealand RBNZ’s interest rate decision. The bank is widely expected to remain on hold, keeping the cash rate at 5.50% and currently NZD OIS imply a probability of 96% for such a scenario to materialise. Should the bank remain on hold as expected, the next point of interest is to be the bank’s accompanying statement. Should the document show a relative decisiveness to maintain rates high for longer contradicting the market’s possible expectations for rate cuts to come until the end of the year, we may see the Kiwi getting some support. On the flip side, should the bank imply that rate cuts are on the horizon and nearing we may see NZD weakening.

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Today besides the release of Canada’s April inflation metrics, we also from the UK May’s CBI indicator for industrial orders. On the monetary front, we note that BoE’s Kroszner, BoE’s Mills, Fed Board Governor Waller, Richmond Fed President Barkin, NY Fed President Williams, Atlanta Fed President Bostic, Fed’s Vice Chair Barr and BoE Governor Andrew Bailey are scheduled to speak. During tomorrow’s Asian session, besides RBNZ’s interest rate decision, we note the release from Japan of March’s Machinery orders growth rate and April’s trade data.