– Loonie rising as expected BoC rate hikes to match Fed.
– Bank of England surprises with a 50bp rate bump.
– US dollar is offered due to Fe rates close to a peak.
USDCAD snapshot: open 1.3145-49, overnight range 1.3141-1.3167, close 1.3165, WTI $71.64, Gold $1928.98
The Canadian dollar, much like Red Bull, has taken flight. The currency has climbed 3.7% since the end of May and appears set to continue its upward trend as traders assess the outlook for domestic and Federal Reserve interest rates.
On May 31, USDCAD reached its peak at 1.3650, but steadily traded lower, reaching 1.3141 as the New York market opened today. This decline followed a surprise rate hike by the Bank of Canada, followed by the Fed’s decision to leave rates unchanged at its June 14 meeting.
The interest rate policies of the Fed and the Bank of Canada seem to be diverging. Yesterday’s robust Canadian retail sales report for April,
showing a 1.1% increase compared to the estimated 0.2%, caught the Bank of Canada off guard. They admitted underestimating the resilience of the Canadian economy and expressed concerns that inflation might stall at 3.0%, which exceeds the target of 2.0%. Many analysts now anticipate another 25 basis points rate hike at the upcoming July meeting.
Although the Fed decided not to raise rates in June, they are expected to implement a 25 basis points increase in July. The Summary of Economic Projections suggests two rate hikes before the end of the year, and Fed Chair Jerome Powell echoed this sentiment during his testimony to the House Financial Services Committee yesterday.
However, remarks from other members of the Federal Open Market Committee (FOMC) seem to contradict this view and indicate that the Fed may soon pause its rate hikes.
The belief that the Fed has reached or is nearing its peak rate has led to selling pressure on the US dollar, as other G-10 central banks continue to raise their benchmark rates. The Bank of England surprised the market with a 50 basis points rate hike, pushing the overnight rate to 5.0%. Norway’s Norges Bank also increased rates by 50 basis points, while the Swiss National Bank opted for a 25 basis points increase.
EURUSD traded within a range of 1.0980-1.1007, supported by the rate hikes from the Swiss National Bank and Norges Bank.
GBPUSD experienced fluctuation within a range of 1.2740-1.2840 after the Bank of England’s decision, which was not unanimous. Two members voted to keep rates unchanged.
USDJPY traded within a range of 141.62-142.09, with support coming from dovish comments made by another Bank of Japan policymaker.
AUDUSD traded within a range of 0.6759-0.6805, with downward pressure due to the Reserve Bank of Australia’s dovish stance and the absence of an announcement regarding a new stimulus program from China.
Today’s data from the United States includes weekly jobless claims, existing home sales, and the Chicago Fed National Activity index