– Oil surges on supply disruption fears

– Bank of Canada to announce 0.25% rate hike today

– US dollar opens mixed, commodity currencies outperform

USDCAD Snapshot: open 1.2711-15, overnight range-1.2691-1.2743, close 1.2743, WTI open $107.62, Gold open $1926.75

The Canadian dollar cannot break the chains of its February range, despite West Texas Intermediate (WTI) oil surging to $111.46/barrel, a level last seen in August 2013.

The oil price rally follows on the heels of news that the US and allies released 60 million barrels from their Strategic Petroleum Reserves. The volume sounds impressive but in the context of global demand of 100 million barrels per day, it is merely political grandstanding, as it does nothing to alleviate the supply crunch.

Making matters worse, Opec, which meets today, is unlikely to increase crude production beyond the 400,000 barrel per day previously announced.

The Bank of Canada (BoC) will raise interest rates by 0.25% today in an acknowledgement to soaring inflation and the economic recovery from the pandemic. There is not a press conference following the statement. Analysts will have to wait until tomorrow when Governor Tiff Macklem provides and economic update. Meanwhile, the prospect of further rate hikes in coming months and high oil prices should counter the impact of negative global risk sentiment on the currency.

Last night, President Biden delivered the annual State of the Union address. It was filled with the usual and juvenile “pep-rally” enthusiasm, promising action on inflation while condemning Russia. Traders rightfully ignored the remarks.

Fed Chair Jerome Powell will not be ignored when he addresses Congress today. There is a risk that Mr Powell uses the Ukraine invasion as an excuse to downgrade expectations of substantial rates hikes in 2022.

EURUSD plunged to 1.1060 from 1.1135 on nervousness due to the Russian/Ukraine war and dovish ECB policies in the face of rising EU inflation (HICP Feb. actual 5.8% y/y vs forecast 5.4% and previous %.1% y/y). Germany’s Bundesbank warned inflation could average 5.0% this year. EURUSD recovered to 1.1108 in NY on the heels of improving equity markets.

GBPUSD traded sideways in Asia, then dropped from 1.3338 to 1.3273 in early European trading before bouncing to 1.3324 in NY. GBPUSD may be seeing some support after BoE officials indicated that rate hike plans remained intact.

USDJPY climbed from 114.80 to 115.39 with prices underpinned some reduction in JPY safe-haven demand, although soft US Treasury yields are limiting gains.

AUDUSD and NZDUSD benefit from their physical distance from the Russia/Ukraine conflict and the surge in commodity prices.

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