– China stimulus talk sparks global equity rally
– Canada CPI and Fed meeting ahead
– Commodity currency bloc surges on improved risk sentiment
USDCAD Snapshot: open 1.2720-24, overnight range-1.2703-1.2774, close 1.2765, WTI open $97.14, Gold open $1,922.44
The Canadian dollar is in rally mode. Chinese authorities vowed to shore up equity markets, and Ukraine President Volodymyr Zelenskyy spoke of “negotiation progress.” The two events fueled a broad-based rally.
USDCAD climbed to 1.2868 yesterday at the 10:00 am option expiry window, then reversed course and fell steadily throughout the day and overnight, driving prices to 1.2703 in early NY trading. The Loonie benefits from a rash of “risk-on” sentiment as its gains are in tandem with sharply rising Australian and New Zealand dollars and a rebound in S&P 500 futures.
China Vice Premier Liu He promised to keep stock markets stable while adopting policies to manage developer risks. He said the government would take measures to boost economic growth in the first quarter and said that authorities would continue to negotiate with US regulators over stock listings.
Those comments fueled a 9.08% rally in the Hong Kong Hang Seng index, causing the other major Asian indexes to rally as well. The stock market gains continued in Europe, with the German Dax rising 3.2% in early NY trading. Wall Street is poised for a positive open as well.
Curiously, equity traders are ignoring the US 10-year Treasury yield, which is at 2.20% as bond traders’ position for a more hawkish than expected FOMC meeting outcome today. The Fed is expected to raise interest rates by 0.25%, with the dot-plot forecast predicting at least five more hikes in 2022.
The Canadian dollar may be deriving additional benefits ahead of today’s inflation report. February CPI is expected to have jumped to 5.5% y/y compared to 5.1% in January, while the monthly gain remains unchanged at 0.9%.
The Bank of Canada is well aware that domestic inflation is not only well above its 2.0% target but trending higher. The BoC hiked interest rates 0.25% on March 3, and at the time, Governor Tiff Macklem said the rate hike was the” first step in a rising path for interest rates.”
If today’s inflation rate is higher than forecast, the BoC may consider more aggressive rate hikes in the future.
US Retail Sales are also on tap, but the data will be ignored.