– Canada CPI consensus forecast 0.7% m/m (February 0.3%).
– Risk aversion ripples underpinning greenback.
– US dollar opens little change from close but higher from Mondays open.
USDCAD: open 1.3792, overnight range 1.3784-1.3814, close 1.3788, WTI $85.06, Gold, $2372.19
The Canadian dollar is on the defensive, and it has a lot of company. All the major G-10 currencies are feeling the pressure of the relentless demand for US dollars due to divergent interest rate outlooks and because of simmering geopolitical risks.
The Canadian dollar has an opportunity to march to the beat of its own drummer today due to the release of the March inflation report. Last week, the Bank of Canada left its benchmark rate unchanged, but Governor Tiff Macklem smugly hinted in his post-meeting press conference that a June rate cut was a possibility. However the statement said “While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained.” It will be very hard to suggest that the downward momentum is sustained if the consensus forecast of CPI rising 0.7% m/m compared to 0.3% is correct. If so, that should be no June rate cut which should be a USDCAD negative.
The Federal government tables is 2024 budget on Wednesday. The Feds have already announced massive new spending initiatives which will provide additional stimulus to the economy and may make an interest rate cut unnecessary.
EURUSD traded in a 1.0602-1.0635 range with gains limited by diverging ECB and Fed interest rate policies. Morgan Stanley economists are predicting that the ECB will cut rates by 75 bps in 2024, with the first cut in June, while the Fed waits until the last quarter of 2024 before it makes a move.
GBPUSD is clawing back some losses and has risen from 1.2409 to 1.2456 after a mixed employment report. The unemployment rate rose to 4.2% from 3.9% and regular pay (excluding bonuses) fell slightly (actual 6.0% from 6.1%). However, higher US Treasury yields are limiting GBPUSD gains.
USDJPY rallied from 154.13 to 154.63 in tandem with the US 10-year Treasury yield rising from 4.52% yesterday to 4.65% today.
AUDUSD traded poorly in a 0.6408-0.6445 range, extending yesterday’s losses due to a wave of risk aversion sentiment from higher US rates and Middle East tensions.