– Consensus forecast for Canadian May jobs is a gain of 21,000.
– Fed expected to skip a June rate hike.
– US dollar opens defensively but within yesterday’s ranges.
USDCAD snapshot: open 1.3336-40, overnight range 1.3334-1.3369, close 1.3358, WTI $71.56, Gold $1961.99.
The Canadian dollar is gradually strengthening in early NY trading due to conflicting interest rate outlooks between the US and Canada.
Yesterday, in a speech delivered in Victoria, Deputy Governor Paul Beaudry of the Bank of Canada (BoC) provided justification for the bank’s unexpected 25 bps rate hike.
He stated, “The accumulation of evidence-across a range of economic indicators suggests that excess demand in the Canadian economy is more persistent than we thought, and this increases the risk that the decline in inflation could stall. That’s why we decided to raise the policy rate.”
Beaudry concluded by acknowledging upside risks associated with the Bank’s interest rate projections and cautioned that “we are entering a new era of structurally higher interest rates.”
His comments should be taken with a grain of salt. You may recall the words of Governor Tiff Macklem on June 15, 2020. He said “Our message to Canadians is that interest rates are very low and they’re going to be there for a long time. If you’ve got a mortgage of if you’re considering making a major purchase, or you’re a business and you’re considering making an investment, you can be confident rates will be low for a long time.”
If a long time is nine months, Mr Macklem’s prediction was “bang-on.” However, a central bank is supposed to look at the big picture as they say the impact of tightening can take up to two -years to filter through the economy.
Mr Beaudry’s remarks suggest another rate hike in July is likely and this viewpoint could gain further support if today’s employment report reveals a greater number of new jobs than expected. The consensus forecast predicts a gain of 23,200 jobs, and a rise in the unemployment rate from 5.0% to 5.1%.
EURUSD traded quietly in a 1.0758-1.0785 and is supported by expectations the Fe leaves rates unchanged while the ECB hikes by 25 bps.
GBPUSD drifted in 1.2535-1.2567 band, with price action determined by broad US dollar sentiment.
USDJPY traded negatively in a 138.77-139.72 range with prices on the defensive due to the drop in the US 10-year Treasury yield from 3.81% to 3.75%.
AUDUSD climbed from 0.6694 to 0.6723 supported by weak Chinese CPI and PPI data which suggests the PboC may cut interest rates soon.
The US economic data calendar is empty.