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Forex Today: Market attention shifts to mid-tier US data, Canada inflation figures

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Here is what you need to know on Tuesday, June 25:

Following a bearish start to the week, the US Dollar (USD) holds its ground early Tuesday as investors await housing, regional manufacturing and consumer confidence data. In the early American session, May Consumer Price Index (CPI) data from Canada will also be watched closely by market participants.

The positive shift seen in risk mood made it difficult for the USD to find demand in the first half of the day on Monday. The mixed action in Wall Street, however, helped the currency limit its losses later in the day. Nevertheless, the USD Index lost more than 0.3% on a daily basis, while the Dow Jones Industrial Average gained 0.67% and the Nasdaq Composite fell 1.3%. Early Tuesday, the USD Index stays in a consolidation phase slightly below 105.50 and US stock index futures trade marginally higher on the day.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.

USD   -0.37% -0.35% -0.18% -0.29% -0.45% -0.17% -0.15%
EUR 0.37%   0.03% 0.24% 0.12% -0.05% 0.24% 0.31%
GBP 0.35% -0.03%   0.14% 0.08% -0.09% 0.21% 0.27%
JPY 0.18% -0.24% -0.14%   -0.10% -0.22% 0.06% 0.06%
CAD 0.29% -0.12% -0.08% 0.10%   -0.14% 0.12% 0.19%
AUD 0.45% 0.05% 0.09% 0.22% 0.14%   0.30% 0.36%
NZD 0.17% -0.24% -0.21% -0.06% -0.12% -0.30%   0.06%
CHF 0.15% -0.31% -0.27% -0.06% -0.19% -0.36% -0.06%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The data from Australia showed in the early Asian session that the Westpac Consumer Confidence improved to 1.7% in June from -0.3% in May. In the meantime, China’s Premier Li Qiang noted that they are confident and capable of achieving the full-year growth target of around 5% this year. After closing in positive territory on Monday, AUD/USD continues to edge higher and was last seen trading at around 0.6670.

Annual inflation in Canada, as measured by the change in the CPI, is forecast to edge lower to 2.6% in May from 2.7% in April. USD/CAD closed in the red on Monday and continued to stretch lower early Tuesday. The pair was last seen trading at its weakest level in three weeks near 1.3650.

USD/JPY corrected lower after coming within a touching distance of 160.00 on Monday as investors refrained from betting on further Japanese Yen weakness on growing speculation about an intervention. Japan Chief Cabinet Secretary Yoshimasa Hayashi repeated that excessive foreign exchange (FX) volatility is undesirable, adding that they will closely monitor the FX moves and will take necessary steps if needed.  Early Tuesday, USD/JPY trades in the red below 159.50.

EUR/USD took advantage of the USD weakness on Monday and recovered toward 1.0750. The pair stays relatively quiet and fluctuates in a tight channel below this level in the European morning on Tuesday.

GBP/USD gained traction and advanced to 1.2700 on Monday. Early Tuesday, the pair stays in a consolidation phase near 1.2690.

Gold registered small gains on Monday as the benchmark 10-year US Treasury bond yield retreated below 4.25%. XAU/USD struggles to build on recent recovery and trades in a narrow band below $2,330 to begin the European session on Tuesday.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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