– WTI oil spikes to $116.49/b
– Fed Powell suggests 0.25% rate hike on March 16
– Canadian dollar rallies with surging oil
USDCAD Snapshot: open 1.2320-24, overnight range-1.2589-1.2653, close 1.2653, WTI open $112.89, Gold open $1934.13
The Canadian dollar rallied after the Bank of Canada hiked interest rates and oil prices soared. The rate hike was widely expected but the surge in crude prices caught many by surprise. USDCAD dropped from 1.2743 yesterday to 1.2589 overnight before prices rebounded to 1.2635 in NY trading.
West Texas Intermediate climbed to $116.49/barrel overnight on fears that oil supply shortages may exacerbated if the US and EU sanction Russian oil exports. The American’s are already sanctioning Russian refinery exports and oil traders fear crude exports are next on the list. They did not want to be ensnared in sanction penalties, so they are declining to accept Russian product.
In addition, the EIA reported that US crude inventories fell by 2.6 million barrels in the week ending February 25.
The BoC raised the overnight rate by 0.25% as widely expected and the statement underscored concerns about inflation saying “inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards.” The statement also predicted more rate hikes. “As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further.”
Fed Chair Powell did his bit. He all but confirmed a rate hike March 16 and left the door open to 0.50% hikes at later meetings. Those comments fueled a steep rally in the US 10-year Treasury yield which soared to 1.858% from 1.71%, Tuesday morning.
EURUSD traded lower, falling to 1.1072 from 1.1120 due to risks from the Russian Ukraine conflict and Powell’s interest rate outlook. Weaker than expected German and Eurozone Services PMI data also weighed on prices. The EU Producer Price Index soared to 30.6% y/y in January from 26.3% y/y. Even worse the data is from before the Russia-Ukraine war. Inflation is a nasty problem in the EU even if the ECB doesn’t agree.
GBPUSD traded in a 1.3364-1.3417 band. Traders ignored February Services PMI data, which was 60.5 compared to 60.8 previously. GBPUSD continues to track broad risk sentiment while garnering some support from EURGBP selling.
USDJPY rallied tom 115.46 to 115.80 on the back of the sharp rise in US Treasury yields while safe-haven demand for yen limited gains.
AUDUSD and NZDUSD recouped overnight losses with prices underpinned by the rise in commodity prices.
Today’s US data includes weekly jobless claims, factory orders and ISM Services PMI, none of which will matter after Mr Powell indicated the Fed would hike rates on March 16.