– RBNZ hikes rates 0.50%, more than expected
– UK inflation climbs 7.0%, highest since 1992
– NZD underperforms as US dollar opens on mixed note
USDCAD Snapshot: open 1.2647-51, overnight range 1.2613-1.2650, close 1.2643, WTI open $101.01, Gold open $1,977.68
The Canadian dollar traded erratically and with a bearish bias overnight. Traders are looking ahead to the Bank of Canada’s interest rate statement, the quarterly Monetary Policy Report, and Governor Tiff Macklem’s press conference at 11:15 EDT.
The Bank of Canada is expected to hike the overnight rate by 0.50% to 1.0% as officials continue to normalize policy and combat surging inflation.
On March 25, Deputy Governor Sharon Kozicki said that the BoC’s “primary concern was inflation.” She said, “inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand.” Those comments gave rise to speculation that a 0.75% rate hike could be in the cards. If so, the Canadian dollar would rally.
However, the BoC could adopt the Reserve Bank of New Zealand approach. The RBNZ raised the Overnight Cash Rate (OCR) by 0.50% today but then issued a somewhat “wishy-washy”, dovish statement.
The RBNZ said “their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimize any unnecessary volatility in output, interest rates, and the exchange rate in the future.”
If Tiff Macklem and colleagues adopt that approach, the Canadian dollar would sink.
The Canadian dollar is not getting much support from oil prices. West Texas Intermediate climbed to $102.81/barrel from $99.92/b, despite the API weekly crude stocks report showing inventories rose by 7.75 million barrels in the week ending April 8.
Meanwhile, yesterday’s higher than expected US March inflation reading of 8.5% drove Wall Street lower, boosted Treasury yields and the US dollar. Sentiment changed overnight after some pundits speculated that US inflation may be peaking as Core inflation rose only 0.3% m/m , below forecast and the February result of 0.5%.
Asian equity markets closed with modest gains while European bourses are lower. The UK FTSE 100 is modestly higher. Wall Street equity futures are suggesting a positive open today.
EURUSD traded in a 1.0812-1.0847 range, with prices weighed down by the ongoing Russian invasion of Ukraine and yesterday’s ZEW data warning of rising recession risks.
NZDUSD popped to 0.6900 following the 0.50% rate hike, then plunged to 0.6772due to the dovish outlook.
The only data of note is US PPI.