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Market participants continue to assess the prospects for the Fed's monetary policy. After last week's US inflation report pointed to its next increase (the consumer price index (CPI) in January rose by +0.6% (+7.5% in annual terms) after rising by +7.0% in December), the Fed interest rate futures market pointed to a 20% chance of a rate hike before the March meeting, as well as a 70% chance of another 50 basis point hike at the March meeting.
In this regard, market participants will carefully study the minutes of the January FOMC meeting in order to understand what to expect from the Fed in the coming months.
At the end of the January meeting, Fed leaders confirmed the decision to accelerate the reduction in asset purchases in order to complete the QE program in March 2022 and begin raising interest rates. Although some Fed officials express their private opinion that a tougher approach is needed, most of them consider it reasonable to raise interest rates three times in 2022.
Probably, such a prospect is already taken into account in the quotes of the dollar, and it will continue to gradually strengthen, provided that the Fed manages to bring the accelerating inflation under control.
Minutes from the January meeting of the Fed ("FOMC minutes") will be published at 19:00 (GMT).
Of the important macro data, which will also be published today, it is worth noting the publication at 13:30 (GMT) of information on retail sales in the US and consumer price indices in Canada, which reflect the dynamics of retail prices of the corresponding basket of goods and services. The inflation target for the Bank of Canada is in the range of 1%-3%. The rising CPI is a harbinger of a rate hike and positive for the CAD. The core consumer price index rose in December 2021 by +4.0% (annualized). Data better than previous values will strengthen the Canadian dollar. Forecast for January: +4.6% (annualized) for core CPI and +4.8% (annualized) for CPI. As we can see from the statistics, inflation in Canada is also accelerating, but not as much as, for example, in the United States.
If the expected data turns out to be worse than the previous values, then this will negatively affect the CAD, and the USD/CAD pair will grow in this case.
However, CAD may receive support today from the publication (at 15:30 GMT) of the weekly report of the US Department of Energy (oil market analysts predict a decrease in oil reserves in US storage facilities by -1.572 million barrels). Oil prices have been fluctuating lately, both amid news of Iran nuclear deal talks and tensions between Russia and Ukraine.
Market participants are also evaluating data from the American Petroleum Institute (API), released on Tuesday. According to these data, oil reserves in the US in the reporting week decreased by -1.076 million barrels. This is a positive factor for oil prices and CAD, and we see that in the first half of today's trading day, oil prices and CAD quotes are growing, including against the backdrop of a weakening USD.
At the time of publication of this article, futures for the DXY dollar index are traded near 95.81, 62 points below the local maximum reached earlier this week.
