Dollar Slips as Debt Deal Inches Closer

The US dollar was the worst-performing major on Wednesday as politicians wrangled over a debt ceiling deal and European leaders prepared for Thursdays summit. The yen and euro were the top performers. The upcoming session features Japanese trade data and a key quarterly survey on the Australian economy.

The White House said Obama is in eleventh hour debt ceiling negotiations as he met with Congressional leaders. At this point, no deal seems likely by the weekend but Obama said he is open to a short-term deal to raise the debt ceiling if its tied to a larger deal. He emphasized it will only be a very brief extension. He meets with House Republicans late in the day in what could be a pivotal event.

Fitch had some kind words, saying there appears to be progress toward a credible plan. The S&P 500 fell 1 point to 1325 in lackluster trading.

Several plans and ideas leaked out ahead of Thursdays emergency EU meetings. Germany said no agreements have been reached.

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USD/CAD neared a 3 month low after the Bank of Canada's Monetary Policy Report. Officials upgrade the forecasts for core and headline inflation considerably in the near term but said headline likely peaked at 3.4% in Q2. The report emphasized that the BOC plans to gradually raise rate in the year ahead likely more than any other major central bank. Talk about a high Canadian dollar weighing on trade hindered CAD. USD/CAD fell below 0.9500 but the key support level is the April low of 0.9445.

Markets await Australia's NABs quarterly survey at 0130 GMT. The National Australian Banks business confidence index showed confidence declining in June but current conditions modestly higher. The Q1 survey put business confidence at 11 and current conditions at 2. There is no consensus for Q2 but the market is likely pricing in a deterioration in confidence but not a negative number.