– Month and quarter-end flows supporting US dollar, weighing on stocks
– Canada April GDP ahead-forecast 0.3%
– US dollar ending first half of year with robust gains
USDCAD Snapshot open 1.2913-17, overnight range 1.2880-1.2932, close 1.2896, WTI oil $109.74, Gold $1812.13
Note: There will not be an FX update on Friday or Monday due to Canadian and US holidays.
The Canadian dollar is under pressure to start the last day of the month. It has a lot of company as portfolio rebalancing flows boost the US dollar against the major currencies, while driving global stock markets lower.
The Canadian dollar is poised to finish the first half of 2022 as the best performing major G-10 currency. It only lost 1.31% since the start of the year, far better than the other commodity currency performance. The Australian and New Zealand dollars lost 3.0% and 8.25%, respectively. The Japanese yen was the worst and by a large margin, losing 17.6.
The US dollar demand is due to the Federal Reserves’ abrupt pivot on inflation Fed Chair Jerome Powell and colleagues finally realized that they had missed all the signs inflation increases were occurring at a rapid pace and were more widespread.
The Federal Reserve Open Market Committee members revised interest rate forecasts sharply higher, partly because bond traders had done the heavy lifting for them. The US 10-year yield soared to 3.30% in June from 1.65% at the start of the year.
The US dollar also commanded a hefty-safe-haven bid after Russia invaded Ukraine in February, and China experienced another Covid-19 outbreak.
The Canadian dollar has bounced erratically in a USDCAD 1.2030-1.3070 range for the past 6 months. That is unlikely to change if the Bank of Canada hikes rates as aggressively as many analysts are forecasting.
Canada’s inflation rate soared 7.7% y/y in May which is higher than expected. Canada April GDP is on tap today and expected to rise 0.3% m/m and 0.8% q/q. If growth is stronger than expected, it suggests the Canadian economy can withstand a 1.0% rate hike July 13.
The Canadian dollar is also underpinned by the 2022 surge in West Texas Intermediate oil prices. WTI soared from $75.00/barrel in January to $129.00 in March then consolidated in a $101.00/b-$120.00/b range in June. That gain helped Alberta post a $3.9 billion budget surplus.
It’s a busy data for data in the US. Weekly jobless claims, Personal Consumption Expenditures Price index, and Chicago PMI are on tap.