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USD / CAD - Canadian dollar inches higher

- Asian markets very quiet due to Lunar New Year holidays

- Traders are cautious due to dovish Fed concerns and debt ceiling default risks.

- US dollar opens lower with commodity currencies outperforming.

USDCAD snapshot: open 1.3357-62, overnight range 1.3344-1.3384, close 1.3380, WTI $82.24, Gold $1926.48

The Canadian dollar consolidated Friday’s gains in an uneventful overnight session.

The Canadian dollar recovered all of its losses from Thursday when a spate of US economic data raised fears of recession stateside. Those fears were alleviated somewhat Friday, following dovish comments by a usually hawkish Fed policymaker and the US dollar dropped.

USDCAD rallied from 1.3350 on Thursday to 1.3518 in early NY trading Friday, the dropped throughout the day to close at 1.3380. Prices continued to fall overnight and touched 1.3344 before climbing to 1.3370 in early NY trading.

The sliding US dollar has boosted commodity prices including oil. West Texas Intermediate (WTI) climbed from Friday’s low of $79.80/barrel to $82.40/b in NY today due to renewed optimism for oil demand. Traders expect the implementation of Russian sanctions of Feb 5 and renewed demand from China will lift prices to the $100.00/b area.

Friday, Fed policymaker Christopher Waller, a noted hawk donned a dovish cloak. He said that although “it wasn’t time to declare victory,” it was time to slow the pace of rate hikes.

Inflation appears to be cooling in Canada. December CPI slowed to 6.3% y/y from 6.8% in November, however the drop was due to a 13.1% fall in oil prices. Oil prices have jumped over 17% since the December low which suggests a higher inflation reading for January.

It also means that those hoping the Bank of Canada will leave interest rates unchanged on Wednesday, will be disappointed.

The major Asian financial markets were closed today. China, Hong Kong, Taiwan, North Korea, Singapore, Indonesia, Viet Nam and Malaysia had the day off to celebrate the Lunar New Year. Chinese markets are closed for the entire week.

EURUSD traded in a 1.0855-1.0926 range overnight, supported by dovish Fed-speak and hawkish ECB chatter.

GBPUSD traded in a 1.2352-1.2447 range and is near the bottom of that band in NY. Prices are supported by broad US dollar weakness.

USDJPY is at the top of its 129.06-130.43 range and remains in demand following the dovish surprise from the Bank of Japan last week.

AUDUSD rallied in a 0.6965-0.7013 range overnight continuing to benefit from optimism around China’s economy reopening.