The Canadian dollar started today’s session as the worst-performing G-10 currency overnight after losing 0.13% compared to yesterday’s closing level. The New Zealand dollar was the biggest gainer, rising 0.75%. The U.S. dollar is on the defensive as the “reflation trade” loses its luster.
U.S. inflation rose 2.6% /y/y compared to the consensus forecast for a 2.5% increase. The 0.6% m/m increase was the highest since 2012, but mostly due to higher gasoline prices. The results were not unexpected as the gains are starting from a very low base rate due to the coronavirus’s impact. Federal Reserve Chair Jerome Powell has repeatedly said that inflation may rise, but it won’t lead to higher interest rates until the Fed’s dual mandate is achieved.
U.S. Treasury yields did not get any lasting support from the rise in inflation. 10-year Treasury yields slipped from 1.662% to 1.627% today, which served to undermine the greenback in the process.
The Canadian dollar didn’t react to the jump in West Texas Intermediate (WTI) oil prices. WTI surged to $61.28/barrel from $59.80/b yesterday after the American Petroleum Institute reported a 3.6-million-barrel drawdown in weekly crude inventories for the week ending April 9. Oil prices continue to be underpinned by hopes that a global economic rebound will increase crude demand.
EUR/USD inched higher overnight, rising from $1.1949 to $1.1973 in uninspiring trading. The single currency got a lift from broad U.S. dollar selling pressures, but weak Eurozone Industrial Production data and dovish comments from European Central Bank policymakers slowed gains.
GBPUSD rallied in Asia then erased the gains on news that Bank of England Chief Economist Andy Haldane would resign June 24. Haldane is considered to an advocate for higher interest rates, and his absence could mean a more dovish bias for the BoE. GBPUSD was also weighed down by EUR/GBP demand.
USD/JPY suffered from the dovish reaction to the U.S. inflation report. The slide in Treasury yields undermined the currency pair. Bank of Japan Governor Haruhiko warned markets that “economic risks were skewed to the downside.”
The Reserve Bank of New Zealand did not surprise anyone. The left interest rates and monetary policy unchanged. They said that higher rates were a long way off and that they were prepared to lower the OCR if needed. That news and the improved risk tone drove NZD/USD and AUD/USD higher.
The Canadian and U.S. economic calendars are empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians