– Risk sentiment sours on bond sell-off
– EURUSD climbs on relief rally
– US dollar opens modestly lower compared to Friday
USDCAD Snapshot: open 1.2574-78, overnight range 1.2568-1.2616, close 1.2568, WTI open $95.77, Gold open $1,958.13
The Canadian dollar dropped in Asia then clawed back some of the losses in early NY trading. Domestic Canadian issues did not have any bearing on the price action.
Friday, Statistics Canada reported that 72,500 new jobs were created in March, which knocked the unemployment rate down to 5.3% from 5.5%. That is the lowest level since they started keeping records in 1976. It also confirms that the Canadian economy no longer requires any stimulus and supports an aggressive rate-hiking path by the Bank of Canada.
However, the news did not impact the Canadian dollar as traders focused on external developments.
USDCAD climbed steadily in Asia, rising from 1.2568 to 1.2616, then chopped about in a 1.2570-1.2605 range since NY opened. The price action is driven by rising Treasury yields, falling oil prices, weak equity price action, and broad US dollar strength.
West Texas Intermediate (WTI) is under pressure. Prices dropped from $99.75/barrel at Friday’s NY close to $93.45 in NY trading due to fears of slowing demand from China. Shanghai is experiencing a severe COVID-19 outbreak and authorities have locked down the city of 27 million. Traders are concerned that the virus will spread throughout China and reduce oil demand. Even so, the numerous embargos on Russian oil should limit losses.
US 10-year Treasury yields extended last week’s gains overnight, rising to 2.784% in Asia and hovering around the 2.75% area in early NY trading. The rally continues the move that began after Fed Vice Chair Lael Brainard suggested the Fed would raise interest rates by 0.50% at the May 4 meeting while embarking on a “rapid pace” of quantitative tightening.
The US 10-year yield is 0.73% higher than the Canadian 10-year bond yield, undermining the Canadian dollar.
EURUSD rallied in Asia, rising from 1.0875 to 1.0953 in a relief rally after incumbent French President Emanual Macron defeated right-wing Marine Le Pen in the first round of French elections. Those gains faded in early NY trading prices dropped to 1.0900.
GBPUSD traded choppily in a 1.2991-1.3055 range. UK data was mostly weaker than expected, led by February GDP rising just 0.1% raising risks of negative growth in coming months.
USDJPY soared from 124.00 to 125.76 on the back of rising US Treasury yields. The gains were supported by the Bank of Japan’s focus on getting inflation to 2.0% while being unconcerned with the steep drop in the yen.
There are no US economic reports of note today.