– Market focus turns to upcoming Fed dot-plot projections.
– WTI oil prices consolidate recent gains.
– US dollar opens on mixed not with JPY underperforming.
USDCAD: open 1.3602-06, overnight range 1.3561-1.3606, close 1.3566, WTI $82.08, Gold, $2154.00
The Canadian dollar traded erratically in a USD/CAD range of 1.3561-1.3606 overnight, which is almost identical to yesterday’s trading band. Trading volumes are light due to caution ahead of today’s Federal Open Market Committee (FOMC) meeting, and domestic data is having minimal impact.
Yesterday, Statistics Canada released a very positive February inflation report. CPI rose just 0.3% month-over-month, which was well below the 0.6% expected. The Bank of Canada Core-CPI index rose just 2.1%, compared to 2.4% in January. The results caught traders off-guard, and USD/CAD jumped from 1.3567 to 1.3614. That move didn’t last, and the entire move was erased by lunch. Analysts got a bit excited, and some suggested the BoC may cut rates as soon as April, while the majority are penciling in a June rate cut.
Take the analyst views with a grain of salt. BoC policymakers never understood why inflation was below target prior to the pandemic and never understood why it rose so fast post-pandemic. They are not known as risk-takers and will say they need more data before deciding.
Furthermore, the outlook for US rates is critical to BoC decision-making. Canada is now America’s second-largest trading partner, displaced by Mexico, after the Trudeau government enacted a slew of anti-business policies coupled with high taxes which diverted foreign investment.
Nevertheless, cutting rates ahead of the Fed risks sinking the Canadian dollar but even worse, driving housing prices higher. The BoC will want to avoid exacerbating the housing shortage by lowering mortgage costs.
West Texas Intermediate traded quietly in a $81.56-$82.66 range supported by concerns about supply disruptions following successful Ukrainian drone strikes on Russian oil terminals. However, concerns that US crude inventories will rise are limiting gains.
EURUSD traded eventually in a 1.0836-1.0873 band ahead of the FOMC meeting. ECB President Christine Lagarde attempted to offset rate cut speculation, saying, “Our decisions will have to remain data-dependent and meeting-by-meeting, responding to new information as it comes in.” This implies that, even after the first rate cut, we cannot pre-commit to a particular rate path.”
GBPUSD is at the bottom of its 1.2687-1.2730 overnight range after lower than expected CPI data (actual 3.4% year-over-year vs forecast 3.6%, January 4.0%). Traders are also awaiting tomorrow’s Bank of England policy meeting.
Japan was closed for a holiday, but that didn’t stop USD/JPY rallying to 151.79 from 150.77 due to fears of widening Japan and US interest rate differentials.
AUDUSD drifted in a 0.6511-0.6542 range. Prices are garnering some support following yesterday’s RBA decision to leave rates unchanged.
There are no economic reports of note