– Powell tacitly confirms 50bp rate hike May 4

– Canadian Retail Sales ahead-it is a non-event

– US dollar rebounds sharply

USDCAD Snapshot: open 1.2678-82, overnight range 1.2569-1.2680, previous close 1.2584, WTI open $102.04, Gold open $1,944.09

The Canadian dollar dropped like a rock, extending yesterday afternoon’s losses in a risk averse overnight session.

The Canadian dollar basked in the glow of escalating interest rate forecasts in the aftermath of the surprisingly robust domestic inflation data. Canada CPI soared to 6.7% m/m in March, easily topping forecast for a 6.1% gain. Economists and analysts quickly amended interest rate projections to reflect a sharper pace of hikes in the coming months. That drove USDCAD down from 1.2644 to 1.2450. But traders are easily distracted.

Yesterday, Fed Chair Jerome Powell all but confirmed a 0.50% Fed rate hike on May 4. Mr Powell said “It is appropriate in my view to be moving a little more quickly” adding “I also think there’s something in the idea of front-end loading.”

San Francisco Fed President Mary Daley echoed that sentiment saying the Fed would likely raise rates by 0.50bps at a couple of meetings, and even broached the idea of the need for a 0.75% increase.

Wall Street closed with sharp losses, and Asian markets did the same. Japan’s Nikkei 225 closed down 1.63% with traders digesting FX intervention rumours, new fiscal stimulus, and rising Treasury yields. Australia’s ASX 200 fell 1.57% on US rate hike fears and falling commodity prices.

European bourses are retreating quickly led by a 1.88% drop in the German DAX index. S&P 500 and DJIA futures are down, but above overnight session lows. Gold fell to $1931.23 after closing at $1,951.34 and WTI oil dropped to $101.27 from $104.17/barrel.

EURUSD erased Thursday’s gains and dropped 1.0850 to 1.0791. Higher than expected Eurozone April Manufacturing and Services PPI data provided some support. The EURUSD technicals are bearish below 1.1000.

GBPUSD fell to 1.2864 from 1.3034 as traders became concerned that UK growth concerns would lead to the Bank of England lagging Fed rate hikes.

UK Retail Sales were below expectations in March, falling 1.4% m/m (forecast -0.3%). It wasn’t all bad as the Office for National Statistics noted “retail remains 2.2% above its pre-pandemic level.”

USDJPY consolidated this week’s gains in a wide 127.75-128.68 range with prices sitting at 128.35 in NY. US Treasury Secretary Janet Yellen and Japanese Finance Minister Suzuki reportedly discussed “joint intervention” due to the recent sharp USDJPY moves.

AUDUSD dropped from 0.7376 to 0.7299 and NZDUSD dropped to 0.6670 from 0.6735 due to Powell’s comments and falling commodity prices.

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