– USDCAD set to end week with a 0.38% gain since Monday.
– US PCE and Michigan Consumer Sentiment data due.
– US dollar trading with a slight negative bias.
USDCAD snapshot open 1.3316-20, overnight range 1.3314-1.3345, close 1.3322, WTI $82.08, Gold $1928.45
The Canadian dollar is posting a small 0.38% gains since it opened on Monday, which, in the context of the Bank of Canada opting to cap interest rates at 4.50%, is a decent performance.
The Canadian dollar strength was not an isolated event. The major G-10 currencies rallied as well with the exception of the Swiss Franc which lost 0.18% and the Euro which is virtually unchanged.
The Bank of Canada signalling an end to the post-pandemic rate hike cycle raised speculation other central banks will follow suit. The Fed is not one of them.
The FOMC meets next week on February 1 and is expected to hike rates by 25 bps and suggest another rate increase in March. If so, the Fed funds rate will be 5.0% which many policymakers and analysts believe will be the terminal rate.
The debate is about how soon the Fed will cut rates after the March meeting. Many Fed officials have said a rate cut is unlikely in 2023. North of the border, traders are pricing in a 50 bp rate cut by the end of the year. That would make the Canadian dollar vulnerable to losses.
West Texas Intermediate (WTI) oil prices are creeping higher and are trading near Monday’s peak of $82.50/b, after rising from $81.10/b to $82.40/b overnight. Prices are firming because hopes for increased Chinese demand for crude and lower supply from Russia are more than offsetting recession concerns in some regions.
Traders are looking ahead to today’s Personal Consumption Expenditures Price Index data. A weaker-than expected result (forecast 0.2% m/m) would add to the greenbacks woes. In addition, US Michigan Consumer Sentiment Index is also ahead.
EURUSD bounced in a 1.0867-1.0900 range. Prices are steady ahead of next week’s ECB meeting where policymakers are expected to deliver a 50 bp rate hike and a hawkish outlook.
GBPUSD traded in a 1.2361-1.2418 range. There was no data of note and Chancellor of the Exchequer Jeremy Hunt’s comments did not impact FX.
USDJPY is trading just above its session low in a 129.50-130.26 range. Tokyo inflation rose 4.4% in January, well above Decembers 3.9% y/y level.
AUDUSD traded in a 0.7096-0.7128 range and is ending the weak as the best performing G-10 currency, rising 1.41% since Mondays open.