• Canadian dollar rally runs out of steam ahead of US inflation report
• Brent crude rallies over $91, highest levels since November
• BOC rate hike expectations hover around 34.3% for October 25th  meeting/ 17.5% for the December 6th meeting.

The USD/CAD (a daily chart of which is shown) as of Tuesday (9/12/2023) has shown bullish correctiveness is accelerating on the break of key trendline support that has been since July 31st.  If a bearish bias remains in place, downward momentum could target the lower boundaries of the Bollinger Bands range at 1.3486, followed by the 200-day SMA at 1.3466.  To the upside, the 1.3650 region will provide key resistance.

Today’s price action saw the US dollar soften after a small business survey optimism drifted lower and the Canadian currency benefitted from surging oil prices. 

The key for loonie will likely stem with what happens with both the US inflation and retail sales reports.  If investors grow confident that the US economy is weakening and that inflation pressures remain subdued, the dollar may tumble even further.  If US economic resilience drives rate hike expectations for the Fed to hike again in November, the dollar might have a path towards the 1.37000 level.

NFIB

The US small business sentiment optimism index showed inflation remains a top business problem.  The National Federation of Independent Business index fell from 91.9 to 91.3, which was also lower than the expected decline of 91.5.  The outlook is not inspiring for small business as NFIB economist noted, “With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending.”

The report highlighted that the net percent of owners raising average selling prices rose 2 points from July to a net 27% (seasonally adjusted). 23% of participants viewed inflation as their single most important problem in operating their business, which was higher than last month’s 21%.

Small businesses have a rough road ahead of them and that should get worse if commodity prices remain elevated and as credit conditions tighten.

Oil

Crude prices are rallying after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought.  Heading into the OPEC+ decision at the end of last month, expectations were for the global market to have a supply deficit of just over 1 million barrels a day. ​ After the OPEC+ it was generally viewed that the supply deficit would be around twice that amount.  OPEC is now anticipating a 3.3 million barrels a day deficit over the next 3 months, which is one million more bpd of a deficit than some energy traders were anticipating.

The oil market could get even tighter if the data starts to improve for Europe or China, which means we could easily see Brent crude make a run towards the $100 a barrel level.

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