– Swiss National Bank hikes rates 50 bps says banking crisis over.
– Bank of England expected to raise rates by 25 bps due to hot inflation.
– US dollar extends post FOMC losses overnight.
USDCAD snapshot open 1.3673-78, overnight range 1.3676-1.3733, close 1.3731, WTI $70.13, Gold $1978.35
The Canadian dollar got a lift from broad-based US dollar selling in the wake of yesterday’s FOMC monetary policy decision.
The FOMC raised its benchmark overnight rate by 25 bps to 5.0% and tweaked the language in the statement.
Traders reacted like it was a “dovish hike” after the statement removed the reference to “ongoing hikes” and replaced it with “some additional policy firming.” The tweak implies that policymakers are very close to ending the current rate hike cycle and traders are betting on rate cuts later in the year.
However, the Summary of Economic Projections dot-plot outlook indicates rates will remain at 5.0% for the rest of 2023.
Treasury Secretary Janet Yellen’s comments were more unsettling for markets than the FOMC meeting. She walked back comments that Treasury was ready to support depositors at small banks when she said she had not considered or discussed anything to do with blanket deposit insurance or guarantees of deposits.
That comment renewed concerns about the US banking system which exacerbated the slide in the US 10-year Treasury yield and knocked Wall Street stocks lower.
The Canadian dollar also got some support from rising oil prices. WTI added to yesterday’s post-FOMC gains and rose to $70.76/barrel due to a bullish outlook for crude and broad US dollar weakness.
The Swiss National Bank hiked rates 50 bps to 1.5% to fight inflation, suggested further rate hikes were possible, and announced that government actions put an end to the banking crisis.
EURUSD traded in a 1.0858-1.0929 range with prices hovering around the 1.0875 area in NY. Prices are underpinned by expectations the ECB will continue to raise rates; a sentiment reinforced after ECB policymaker Madis Muller said inflation was a bigger problem than higher borrowing costs. The intraday technicals are bullish above 1.0820, but the daily studies warn EURUSD is overbought.
GBPUSD climbed from 1.2267 to 1.2342 before easing to 1.2297 ahead of the BoE monetary policy announcement. Expectations for a 25 bp rate hike were reinforced after yesterday’s higher than expected inflation reading.
USDJPY dropped from 1.3244 just before the Fed announcement to 130.43 in Asia overnight. The drop was on the back of the steep drop in the US 10-year Treasury yield.
AUDUSD traded in a 0.6683-0.6754 range on the back of broad US dollar weakness.
NZDUSD traded in a 0.6221-0.6296 range. Reserve Bank of New Zealand Chief Economist Paul Conway said rate increases to fight inflation will cause a mild recession in the country.
Today’s US data includes weekly jobless claims, New Home Sales, and Chicago Fed National Activity index.