USD/CAD Climbs on Weakness in Stocks; Investors Brace for July Inflation Data

The US dollar strengthened against its Canadian counterpart on Tuesday during a choppy session in the broader financial markets. Investors poured into the greenback ahead of much-anticipated inflation report on Wednesday, which sent stocks lower. Traders also digested fresh economic data.

The IBD/TIPP Economic Optimism Index in the US tumbled to 38.1 in August, down from 38.5 in July. This was the lowest reading since August 2011 as consumers were pessimistic amid inflation canceling out wage gains. That said, the six-month outlook for the US economy and personal finances sub-index inched higher this month.

But there was a dichotomy between consumers and companies.

The National Federation of Independent Business (NFIB) Optimism Index edged up to 89.9 in July, up from 89.5 in June. Despite the boost, the index reading still remained close to a decade low, with inflation still the chief concern for business owners.

“The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions,” said William Dunkelberg, NFIB’s chief economist, in a statement.

Meanwhile, labor costs remained elevated in the second quarter, climbing 10.8%, according to the Bureau of Labor Statistics (BLS). But while unit labor costs surged, non-farm productivity fell again by 4.6% in the April-to-June period.

The July consumer price index (CPI) will be published on Wednesday. The current estimates are 8.7% for the annual inflation rate and 6.1% for the core inflation print, which removes the volatile energy and food industries.

“The outlook for inflation remains the primary concern for investors,” Wilmington Trust Investment Advisors’ Chief Investment Officer Tony Roth and Chief Economist Luke Tilley wrote in an email on Tuesday to MarketWatch. “Persistent inflation is weighing on sentiment for consumers and businesses, yet economic data remains quite mixed and concerns are elevated that aggressive Fed policy could push the U.S. into recession.”

In addition, mortgage applications and wholesale inventories data will also come out.

The US Dollar Index (DXY), which measures the greenback against a basket of currencies, edged lower by 0.07% to 106.36, from an opening of 106.44. The index is up about 0.1% this week, adding to its year-to-date rally of about 11%.

The USD/CAD currency pair surged 0.3% to 1.2897, from an opening of 1.2860, at 18:50 GMT on Tuesday. The EUR/USD rose 0.11% to 1.0207, from an opening of 1.0195.

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