– Risk sentiment turns positive on US rate cut optimism.
– Oil prices grind higher.
– US dollar on the defensive but opens mixed. GBP outperforms.
USDCAD snapshot: open 1.3416-20, overnight range 1.3413-1.3443, close 1.3436, WTI $80.93, Gold $1982.75.
The Canadian dollar is consolidating its recent gains just above resistance as technical studies suggest the currency is becoming overbought.
The Canadian dollar strength is due to both a surge in oil prices and broad US dollar weakness as weaker than expected US data reinforces the market belief that the Fed will lower interest rates far sooner than expected.
USDCAD support is in the 1.3400 area and while prices are above that level, the risk is for a bounce to 1.3600.
The early rate cut view got more support yesterday after the ISM Manufacturing report was weaker than expected, falling 1.4 to 46.3 in March. In addition, the prices paid component fell 2.1 to 49.2 suggesting lower inflation. The report sparked an equity market rally and weighed on the US dollar.
The Bank of Canada Quarterly Business Outlook Survey (BOS) suggested weaker Canadian growth ahead. The BOS indicator dropped to negative 1.10, the first negative reading since the pandemic days of 2020.
Saudi Arabia is spinning Opec’s decision to cut oil production as a move designed to punish speculators. In 2020, Oil Minister Prince Abdulaziz bin Salman spoke about making” guys in the trading floors jumpy as possible,” and the cuts certainly achieved that goal.
West Texas Intermediate added to recent gains, rising from $80.36/barrel to $81.28/b overnight. Higher oil prices are inflationary. In the past, a production cut would have fueled US dollar demand and rate hike speculation. Not in today’s environment.
Traders ignored the inflation risks, content in their belief that the Fed will be lowering interest rates as soon as the summer.
EURUSD drifted in a 1.0884-1.0937 range with the single currency underpinned by divergent US and ECB interest rate outlooks.
GBPUSD rallied in 1.2397-1.2520 range due to broad US dollar weakness and dovish comments from a Bank of England official.
USDJPY traded 132.18-133.06 range with traders ignoring the weak US 10-year Treasury yield
AUDUSD traded in a 0.6737-0.6792 range. The RBA left rates unchanged, and traders turned their focus to broad US dollar moves.
Today’s US data includes Factory Orders and JOLTS job openings.