– Geopolitical tensions flare anew
– No new insight from FOMC minutes
– US dollar trading sideways
USDCAD Snapshot: Open 1.2700-04 Overnight Range-1.2682-1.2733, previous close 1.2691, WTI open $91.48, Gold open $1886.44
The Canadian dollar continues to dance in a 1.2640-1.2770 range. Hotter than expected domestic inflation, the ebb and flow of oil prices and the ever-shifting geopolitical situation are not enough to break the currency pair out of its three-week range.
Canada inflation rose 0.9% in January, well above forecasts for a 0.6% m/m increase. Th result drove annual inflation to a thirty-year peak of 5.1% and forecasters expect inflation rise further in the coming months. Making matters worse, the inflation increases are not just due to a few components but are widespread.
Consumers are concerned but the Bank of Canada-not so much. Deputy Governor Timothy Lane repeated the BoC’s belief that inflation will come down quickly in the second half. It has been wrong about inflation for the past year, so why would anyone believe them today?
USDCAD ticked lower after the CPI data but quickly reversed course and climbed steadily throughout the day and touching 1.2732 in Asia, before sliding back to 1.2690.
The Canadian dollar continues to derive support from oil prices even though they are below their best levels. West Texas Intermediate WTI) bounced in a $90.65/barrel-$93.27/b range overnight and is back at $92.27/b in NY trading. Prices are resilient especially considering that Iran is close to a nuclear deal with the US which if successful will add 1.0 million barrels per day to global supply.
The FOMC minutes did not offer any surprises. US interest rates are going up in March and only the magnitude of the increase (0.25% or 0.50%) is in question.
Wall Street finished yesterdays session close to unchanged while Asian equity indexes closed modestly higher, except for Japan’s Nikkei 225 which fell 0.83%. European bourses have been choppy and are mixed to modestly lower as of 6:40 am ET. WTI oil bounced in a $90.65-(3.27/b range and is at $91.65 in NY. Gold climbed to $1893.20 from $1868.08. the US 10-year Treasury yield sits at 2.011%.
EURUSD see-sawed in a 1.1324-1.1385 band. GBPUSD climbed from 1.3557 in Asia, to 1.3618 in NY as the currency continues to benefit from yesterday’s robust inflation data
Today’s FX market direction will be headline-driven with US weekly jobless claims data being a diversion.