US Open Note - Stocks muted near highs, dollar firms

Markets prepare for FOMC release

Yesterday’s consumer confidence for July ticked only marginally higher from June confirming optimism in the US, however, the dollar index weakened slightly, before stabilizing around the 92.50 level ahead of the Federal Open Market Committee meeting.

Expectations are that Federal Reserve Chairman Jerome Powell will once again be watchful of his rhetoric towards tapering of asset purchases and the timeline and commencement of such actions. Markets will also be ready to digest any clues from Chairman Powell, should there be marginal shifts in the language around the health of the robust US economy and the progress of the labour market, which may delay the Fed from enforcing its slowdown in purchases. That said, shifts in policy are unlikely, however mentions of inflation risks and talk of concerns around the delta variant, not to mention the tapering timeline could move the dollar.

The US economy is the global frontrunner and a subtle hawkish hold today from the Fed could further underpin the greenback’s safe haven appeal, even more so should other economies continue to fall behind.

The euro is largely unchanged and is flirting with the $1.1800 barrier, while softer travel rules by the UK may have assisted the pound, as it is consolidating above $1.3865, around its one-week highs. The USD/JPY pair has peeked back above the 110.00 level as sentiment remains muted ahead of the FOMC decision today.

Price pressures ease in Canada

Annual inflation rate in Canada fell to 3.1% in June from 3.6% in May, which was the 10-year high. The core CPI figure for June (2.7% y/y) beat expectations of 2.4% but remained weaker from the May result of 2.8% y/y. The Bank of Canada is one of the central banks who are currently tapering and have revised their growth and inflation forecasts, which reflect inflation as transitory. The monthly headline and core CPI measures for June were slightly lower at 0.3% versus the 0.4% forecasts. Nonetheless, the inflation results seem to have had a muted effect on the loonie, as it continues to consolidate around the $1.2565 mark.

Antipodean players and commodities

Recently renewed lockdowns down under may hamper Australian inflation moving into the next quarter. The RBA’s policy makers main priorities are full employment and keeping inflation at desired levels and will remain flexible towards helping the recovery as much as is deemed necessary. The aussie slipped from its Asian intraday high and is headed for the $0.7330 low. The kiwi was also lower around $0.6930.

WTI oil futures are hovering above the $72.00 per barrel handle. Gold has slipped from its Asian high of $1,807/oz and is testing the $1,795/oz lows, as the dollar remains somewhat resilient.

US crude oil inventories are due at 14:30 GMT.

Later on, the FOMC decision is set to take centre stage at 18:00, followed by the press conference at 18:30 GMT.

At 01:00 GMT New Zealand’s ANZ business confidence is expected, while at 01:30 GMT Australian import prices q/q are scheduled.

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