– BoC hiked 75 bps proved a non-event
– Risk sentiment improves on lower US Treasury yields
– US dollar gives back some gains, CHF outperforms
USDCAD Snapshot open 1.3136-40, overnight range 1.3108-1.3146, close 1.3120, WTI oil $81.50, Gold $1720.57
The Canadian dollar is grinding higher in early NY trading due to a positive shift in global risk sentiment despite sharply lower crude oil prices
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The Bank of Canada raised its overnight rate by 75 basis points as widely anticipated, taking the rate to 3.25% from 2.50% and into “restrictive” territory. That means the overnight rate is at a level that should negatively impact growth while lowering inflation-at least in theory.
The final paragraph left no doubt that rates will continue to rise.
Canadian dollar traders will get more clarity on yesterday’s decision when Deputy Governor Carolyn Rogers speaks this afternoon.
The rate hike did not have any bearing on USDCAD trading. Prices did fall, but that was all due to a sharp rebound on Wall Street, where the S&P 500 index climbed 1.83%.
Yesterday, stock traders rejoiced when the US 10-year Treasury yield reversed earlier gains and dropped from 3.34% to 3.22%. The drop may have just been technical as the latest bout of Fed-speak was hawkish.
Fed Vice Chair Lael Brainard said US rates need to rise until inflation falls to the target level.
Fed Chair Jerome Powell is at a conference in Washington today, and his remarks should refocus markets on the outlook for sharply higher interest rates which may curdle risk sentiment.
Market action was subdued in Europe, with traders awaiting the European Central Bank monetary policy decision. A 75-bps hike is widely expected. Analysts are hoping for some insight into how high rates will rise as higher rates will exacerbate recession risks sparked by Russia’s invasion of Ukraine.
EURUSD is trading with a positive bias at the top of its 0.9977-1.0028 range. The currency is vulnerable to a spike higher as stale “short-EUR” positions get squeezed. However, ongoing economic concerns, particularly the energy crisis should limit gains.
GBPUSD is tracking EURUSD moves and is at the top of its 1.1478 to 1.1560 range. Further gains may be limited to the 1.1630 area due to negative technicals and a bearish economic outlook.
USDJPY rallied to just below 1454.00 yesterday, then consolidated the gains in a 143.44-144.55 range. The currency is on the defensive as US 10-year Treasury yields slipped to 3.224% in NY trading.
AUDUSD is in the middle of its 0.6715-0.6773 range. The currency is under pressure from somewhat dovish comments by RBA Governor Philip Lowe and by sharply lower trade surplus data.
US weekly jobless claims are expected to rise to 240,000 from 233,000.