– Budget a non-event for FX markets.
– Fed Chair Powell downplays rate cuts.
– USD consolidating gains, opens with small losses.
USDCAD: open 1.3807, overnight range 1.3801-1.3838, close 1.3829, WTI $84.48, Gold, $2392.60.
The Canadian dollar flirted with support yesterday, and it held, and the currency drifted slightly higher overnight. It is a US dollar move. The greenback has been accelerating against all the major currencies this week, and the gains were exacerbated by Fed Chair Jerome Powell. On Tuesday, Mr. Powell appeared to call into question the prospect of any rate cuts in 2024. The strength of recent US economic data has eroded the confidence that policymakers had for an early start to the easing process. Where once, rate cuts were expected as early as June, now the market is not expecting them until the second half of the year.
Mr. Powell does not appear to be as optimistic as the market. He said, “The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence.” His comments reignited a sell-off in stocks and boosted the Treasury yield to 4.684%.
Meanwhile, in the Great White North, the Federal government was announcing how it planned to spend its way to prosperity. The concept of a balanced budget is as foreign as a Martian. The government is planning to spend $53 billion but in order to maintain the budget deficit at $40 billion, plans to “tax the rich,” forgetting that the rich have the means to relocate to a more friendly tax location.
WTI oil traded lower in an 84.41-85.50/b band. API crude inventory data showed inventories rising for the second week in a row, data which undermined prices.
EURUSD inched higher in a 1.0606-1.0649 range. Eurozone inflation was as expected and ignored. EURUSD direction continues to be directed by ECB and Fed interest rate divergences.
GBPUSD bounced about in a 1.2406-1.2481 band. Domestic inflation data was a tick higher than expected (actual 3.2% y/y vs. forecast 3.1%), which led to a delay in the timing for BoE rate cuts.
USDJPY firmed in a 154.45-154.74 range due to rising US 10-year Treasury yields and expectations that the BoJ will not intervene until the 160.00 area.
AUDUSD rallied in a 0.6400-0.6432 range due to improved risk sentiment and profit-taking.
There are no Canadian or US top tier economic reports available today, leaving comments from various Fed officials to drive FX direction.