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USD / CAD - Canadian dollar struggles with sliding oil prices.

- WTI oil down 7.0% since Tuesday.

- Market rate cut optimism offset by Fed caution.

- US dollar finishing the week with sharp losses.

USDCAD: open 1.3723-27, overnight range 1.3719-1.3772, close 1.3757, WTI $73.66, Gold, $1991.66

The Canadian dollar is mostly a spectator to the widespread US dollar sell-off this week that began after the US inflation data was better than expected. The prospect that the Fed would begin easing in May 2024 got more traction following the retail sales data, and bond traders embraced the news wholeheartedly.

The US 10-year Treasury yield dropped over 28 bps from Monday’s peak and sits at 4.41% in NY, which has raised the odds for a May 1, 2024 rate cut to 68%. Interestingly, FOMC members claim to be data dependent, meaning monetary policy decisions will be determined by incoming data but seem to be discounting the latest numbers.

Yesterday, Cleveland Fed President Loretta Mester and San Francisco Fed President Lis Cook added their voices to those urging caution. Ms. Mester said, “It’s going to take some time to get inflation back down to 2%.”

Slumping oil prices are giving Canadian dollar bulls a headache. West Texas Intermediate is down 7.0% this week despite recent forecasts by OPEC and the International Energy Agency (IEA) warning of rising demand in the coming months. Traders dismissed those concerns and focused on talk of increased supply from rising North Sea and Guyana shipments and higher US crude stockpiles, alongside China’s sluggish economic rebound.

EURUSD traded somewhat erratically in a 1.0825-1.0875 range. A lack of Eurozone data has left the single currency benefiting from broadly bearish US sentiment and underpinned by bullish technicals.

GBPUSD churned in a 1.2374-1.2438 range after closing in New York at 1.2413 then dropped to the weak UK October Retail Sales (actual -2.7% y/y vs. forecast -1.5) drove prices to the session low in Europe before sinking US Treasury yields sparked a rally to 1.2441 in NY.

USDJPY took it on the chin, and it fell from 151.50 yesterday to 149.20 where it sits in NY this morning due to this week’s 28 bp drop in the 10-year Treasury yield.

AUDUSD is choppy and tracking US dollar sentiment, and it is near the top of its 0.6452-0.6512 range.

US Housing Starts and Building Permits data and the Canadian Raw Materials Price and Industrial Product Price indexes are on tap.