After a strong rally at the start of the week, the move in commodity currencies against the dollar seems to be fizzling out. Perhaps that is not a surprise given Friday's event risk in the form of the Fed's Jackson Hole. Should commodity currencies be rallying on news that the US House has made progress on passing a $3.5trn social care law, which will also allow progress on the US$550bn infrastructure package? And how should we read the sharp rise in US case numbers as the Delta variant spreads? That could delay Fed tapering but make a correction in US equities more likely as earnings expectations get revised lower. Suffice to say the dollar trend looks mixed at best. And there seem few inputs today - just July Durable Goods Orders - to alter the broad dollar environment.
CAD - Canadian Dollar
The USD/CAD sell-off is showing signs of slowing in the low 1.26s but we think stabilizing risk appetite and higher crude oil price could extend the CAD rebound a little more in the next day or so before more cautious trading sets in ahead of Fed Chairman Powell’s speech at the end of the week. Domestic drivers remain few and far between for the CAD at the moment. Even the federal election campaign seems unlikely to rock the boat with polling suggesting the Liberals are drifting further away from majority territory at the moment—meaning the outcome may not change the balance of power in parliament significantly.
EUR - Euro
This week's risk rally looks to be fading as we close in on the Jackson Hole event. Asian FX and equity gains have slowed a little, meaning that dollar selling pressure has faded. That means EUR/USD looks to be stalling near the 1.1750 area and we do not see a big catalyst for further gains. One wild card is the result of the upcoming German elections. For today, the focus will be on the German August IFO. German manufacturers continue to struggle with supply chain challenges. Any larger than expected drop here could marginally weigh on EUR/USD, though 1.1700 support should hold in quiet markets.
GBP - British Pound
GBP remains very much range-bound, with few immediate drivers seen on the horizon. Recently there has been a debate as to whether the start of BoE tapering could see the terminal rate in the tightening cycle priced lower and be bearish for a currency. For today the GBP/USD will remain well entrenched in recent ranges.
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