– Canada and many European markets are closed Monday.
– Fed policymakers push back against early rate cut sentiment.
– US dollar rises modestly on pre-weekend profit-taking.
USDCAD: open 1.3639, overnight range 1.3612-1.3644, close 1.3619, WTI $79.31, Gold, $2382.56.
The Canadian dollar bounced off resistance and retreated yesterday, then added to its losses overnight. The selling pressure stemmed from various Fed policymakers putting a damper on hopes for the first rate cut occurring in September.
On Wednesday, Fed Chair Jerome Powell said he was disappointed about the lack of downward progress in inflation and said officials need to be patient. Other Fed officials repeated the same theme. NY Fed President John Williams said, “I don’t see any indicators now telling me that there’s a reason to change the stance of monetary policy now.” Richmond Fed President Thomas Barkin said much the same thing, saying it will take a bit more time to get inflation to 2% sustainably. Fed Reserve Bank of Cleveland President Loretta Mester chimed in with, “I expect progress on inflation over time, but at a slower pace than we saw last year.”
Traders took heed. The US dollar clawed back earlier losses, the 10-year Treasury yield climbed from 4.34% to 4.40% today, and equities retreated from record highs. The Canadian dollar was collateral damage and undermined by divergent Fed and Bank of Canada interest rate outlooks.
EURUSD slipped to 1.0835 from 1.0870 due to a bit of profit-taking ahead of long weekend holidays in Denmark, France, and Germany, to name a few. The Eurozone final inflation readings for April were as expected and unchanged. The ECB rate cut in June is a given, but a July cut may not be on the agenda, if ECB board member Isabel Schnabel is correct. She said, “Based on current data, a rate cut in July does not seem warranted. We should follow a cautious approach.”
GBPUSD is trading quietly in a 1.2645-1.2677 band. The prospect of a dovish BoE meeting in June and the Fed maintaining a “steady as she goes” interest rate outlook is weighing on prices.
USDJPY climbed to 155.99 from 155.32 on the heels of rising US Treasury yields and the failure of the Bank of Japan to reduce bond purchases.
AUDUSD traded poorly in a 0.6649-0.6684 band, partly due to weak Chinese Retail Sales data yesterday. However, the downside was supported by the latest Chinese government actions to shore up the housing market.
There are no top-tier US or Canadian economic reports today.