– Geopolitics cast a pall over markets
– Rising US Treasury yields
– US dollar attempting to recover some yesterday’s losses
USDCAD Snapshot: Open 1.2692-96, Overnight Range-1.2666-1.2705, previous close 1.2666, WTI open $89.73, Gold open $1819.11
The Canadian dollar rallied throughout yesterday’s session but is in the process of reversing that move in early NY trading today.
USDCAD dropped from 1.2758 to close at 1.2666 yesterday as prices tracked improved risk sentiment and Wall Street price action. Nevertheless, the Canadian dollar is rangebound at least until Thursday’s US inflation report.
US CPI is expected to be 7.3% y/y in December, which is well above the Fed’s inflation goal of keeping “inflation at the rate of 2 percent over the longer run.” Many analysts and economists are suggesting the Fed is behind the curve and will need to raise rates more aggressively than previously expected. That view is being reflected in the US 10-year Treasury yield which is approaching the 2019 peak of 2.0%.
If CPI is higher than expected, traders will anticipate a 0.50% rate increase at the March FOMC meeting, which will undermine the Canadian dollar as well.
The Canadian dollar is having a love-hate relationship with oil prices.
West Texas Intermediate (WTI) trade above $93.00/barrel on Friday and the Canadian dollar largely ignored the move. WTI drifted lower overnight then accelerated down after minor support at $90.40 gave way, in early NY trading. Prices dropped to $89.04 before recovering to $89.45/b, due to profit taking ahead an anticipated announcement that Iran , the US, and EU have reached another nuclear agreement. If so, Iran could inject another $1.0 million/barrel per day into the global market.
EURUSD traded in a 1.1397-1.1448 range with gains capped by rising US Treasury yields and ECB President Christine Lagarde trying to walk back her hawkish comments last week. Ms Lagarde said there was no need for big monetary policy tightening in the eurozone because inflation is set to fall back to 2.0%. She told the European parliament, “The chances have increased, that inflation will stabilize at our target.” EURUSD has support at 1.1400 and resistance at 1.1500.
GBPUSD is near the top of its 1.3509-1.3563 range and continues to be supported by the prospect for further rate hikes. Profit taking selling of EURGBP also underpinned GBPUSD.
USDJPY traded firmer in a 115.07-115.054 range and continues to be boosted by higher US Treasury yields. The US agreed to roll back Trump’s steel tariffs.
AUDUSD and NZDUSD rallied on the back of the softer US dollar. AUDUSD saw a bit of support after a former RBA board member speculated about the need for 4 RBA rate hikes in 2022.
US Trade data is ahead.