– US Retail Sales data and Michigan Consumer Sentiment Index ahead
– Gold bulls targeting all-time peak.
– US opens softer and is finishing the week in the red.
USDCAD snapshot: open 1.3314-18, overnight range 1.3316-1.3342, close 1.3340, WTI $82.46, Gold $2039.00
The Canadian dollar is consolidating yesterday’s gains near the top of its recent range.
USDCAD has not had a good week. Prices dropped steadily from 1.3550 on Monday to 1.3316, the overnight low. The losses occurred despite the Bank of Canada leaving interest rates and monetary policy unchanged at the April 12 monetary policy meeting.
The BoC noted that the economy grew faster than they had anticipated but said the growth won’t last. Many Canadian bank economists agree, and they are forecasting a mild Canadian recession in the latter part of this year.
Normally, a recession isn’t cause for a currency rally. However, traders are not concerned about domestic developments but instead are focused on the outlook for the US and US interest rates.
The market is convinced that the Fed’s expected 25 bp rate hike on May 2 will be the final hike for this cycle. A series of weaker than expected US economic reports that indicated the US economy was slowing, labour market constraints were easing, and that inflation was falling suggested the Fed would need to turn its attention to looming recession risks.
Atlanta Fed President Raphael Bostic said as much yesterday. He acknowledged that the latest data releases “are consistent with us moving one more time,” and that the sharp increases in interest rates were finally impacting economic data.
Bond traders drove the 10 year Treasury yield to the 3.40% area in the belief that rising recession risks mean the Fed will soon be cutting interest rates. The CME Fedwatch tool suggests the first rate cut will be in the summer, followed by two more before the end of the year.
EURUSD rose to 1.1075 from 1.1047 thanks to the lingering benefit of hawkish ECB commentators advocating for higher interest rates.
GBPUSD was rangebound in a 1.2504-1.2545 band range as improved global risk sentiment was offset by UK economic growth concerns.
USDJPY moved sideways in a 132.18-132.63 range because of soft Treasury yields and more dovish comments from the new Bank of Japan Governor Kazuo Ueda.
AUDUSD traded in a 0.6764 to 0.6793 band, supported by firming commodity prices and broad US dollar weakness.
Today’s US data includes Retail Sales and the Michigan Consumer Sentiment Index. Canada releases Manufacturing Sales for February.