– US CPI expected at 7.0% y/y
– Canadian dollar outperforms G-10 currencies since yesterday
– US dollar slides after Powell testimony
USDCAD Snapshot: Open 1.2537-41, Overnight Range-1.2538-1.2578, previous close 1.2573, WTI open $81.71, Gold open $1817.58
The Canadian dollar is the star performer today. USDCAD fell 0.81% since yesterday’s NY opening level, dropping from 1.2641 to 1.2536 at the NY open today as a surge in crude oil prices exacerbated the slide.
The Canadian dollar is benefitting by anticipation that oil prices will continue to climb, with West Texas Intermediate (WTI) reaching $100.00/b. The US Energy Information Administration released its December Short Term Energy Outlook (STEO) on Tuesday and predicted that global demand would rise by 3.6 million barrels per day, a 70,000 b/day increase over its November forecast.
In addition, the American Petroleum Institute weekly crude stock report showed US inventories falling by 1.02 million barrels. Together, the news fueled a jump in WTI to $81.96/b overnight from Tuesday’s low of $78.86/b.
The Canadian dollar may be seeing additional demand after a large US bank predicted the Bank of Canada would raise interest rates by 0.25% at the January 26 monetary policy meeting. The bank revised its forecast because the output gap is closing more rapidly than expected, and the labour market is tightening. In addition, inflation is more persistent and well above the targeted level. Most other analysts are forecasting a March or April move.
Fed Chair Jerome Powell’s nomination hearing fueled the latest US dollar sell-off. Mr Powell didn’t say anything new but acknowledged that the Fed would normalize policy sooner than previously anticipated. Risk sentiment got a boost after Mr Powell downplayed risks for quantitative tightening (QT), saying it would take two, three, or four meetings to decide the procedures needed to reduce the balance sheet.
Wall Street traders liked what they heard, and the major index closed the day higher, led by a 1.41% rise in the NASDAQ. The positive mood continued in Asia and Europe. G-10 currency pairs are modestly higher after a quiet overnight session.
Dow Jones Industrial Average and S&P 500 futures are in positive territory, but that may change after today’s US inflation report. December CPI is expected to rise 7.0%, the fastest pace in forty years. A higher than expected result may bring forward the timing of the first Fed rate hike from March to January. If so, it could be a messy day.
There are no Canadian economic reports on tap today.