– Fed officials calling for 50 bp hikes sour risk sentiment.

– Equities extend losses as Treasury yields rise,

– US dollar extends gains overnight, posed to finish week on strong note.

USDCAD snapshot open 1.3516-20, overnight range 1.3454-1.3536, close 1.3457, WTI $76.48, Gold $1823.11

The Canadian dollar pushed up against support all week and it finally gave way yesterday.

It started when the US weekly jobless claims numbers were lower than expected which supports the theme of a very tight labour market.

The Producer Price index (PPI) jumped to 0.7% m/m from -0.2% in December suggesting the Fed would need to continue raising interest rates to tame problematic inflation.

Fed policymakers got into the act. St Louis Fed President James Bullard, a well-known hawk chimed in with a call for a 50 bp rate hike on March 22. He said, “My overall judgment is it will be a long battle against inflation, and we’ll probably have to continue to show inflation-fighting resolve as we go through 2023.”

Mr Bullard said he had hoped to see a 50 bp increase at the February 1 meeting as did Cleveland Fed President Loretta Mester.

Those comments and the strong US data knocked bonds and Wall Street lower. The S&P 500 index, which is a favourite risk barometer for traders, plunged and closed with a 1.38% loss. The US 10-year Treasury yield extended the rally from 3.71% on Tuesday to 3.91% in early NY trading.

The Canadian dollar did not get any help from the Bank of Canada. Governor Tiff Macklem and Deputy Governor Paul Beaudry delivered speeches. Neither offered anything new.

EURUSD extended overnight losses and dropped to 1.0614 from a peak of 1.0674 due to broad US dollar demand after hawkish Fed-speak. German PPI rose 17.8% y/y in January which was better than the 21.6% in December but higher than expected.

GBPUSD traded with a negative bias in a 1.1916-1.1989 range. Prices continue to be weighed down by comments from BoE Chief Economist Huw Pill. He warned that continuing to raise rates at last years pace would soon imply monetary policy had been tightened too much. UK Retail Sales rose 0.5% m/m beating the forecast of a 0.3% decline.

USDJPY rallied in a 133.96-13511 range powered by the surge in the US 10-year Treasury yield and uncertainty surrounding the incoming Bank of Japan Governor.

AUDUSD traded lower in a 0.6813-0.6878 band due to broad US dollar demand and weaker commodity prices.

NZDUSD tracked AUDUSD lower in a 0.6196-0.6255 band. Traders are looking ahead to Wednesday’s RBNZ monetary policy meeting where a 50-bp rate hike is expected.

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