- Global stocks rally as risk sentiment improves
- Canada CPI expected to be 6.1% y/y in March
- US dollar retreats on profit-taking and improved sentiment
USDCAD Snapshot: open 1.2542-46, overnight range 1.2539-1.2623, previous close 1.2623, WTI open $103.29, Gold open $1,949.13
The Canadian dollar climbed steadily overnight as global risk sentiment turned positive and falling oil prices found a floor.
Today’s CPI report is expected to show a jump of 0.4% between February and March thanks to Russia’s invasion of Ukraine boosting oil prices and exacerbating supply chain disruptions. If so, the result would support calls for another 0.50% rate hike by the BoC.
West Texas Intermediate (WTI) fell steeply after peaking at $109.50/barrel in Asia on Monday. The plunge was precipitated by fears of a global economic slowdown reducing demand for oil while the latest COVID-19 outbreak in China exacerbated the situation.
Yesterday, the IMF announced it downgraded its 2022 global growth forecast to 3.6% from 4.4% previously, blaming Russia’s invasion of Ukraine for the move. That news accelerated WTI selling, taking prices to $102.60/b overnight. Nevertheless, ongoing supply concerns from sanctions on Russia, Opec’s reluctance to increase production and the 4.5 million barrel drop in US crude inventories help to lift WTI to $103.84/b in NY.
Bond price swings are roiling FX and equity markets. The US 10-year yield climbed to 2.976% in Asia overnight then quickly reversed and it has dropped to 2.867% in NY today. Profit-taking and soothing words from Fed officials helped to drive yields down.
Cleveland Fed President Neal Kashkari warned that the US economy might be vulnerable to new COVID-19 outbreaks, while Atlanta Fed President Raphael Bostic suggested a slower pace of rate hikes is warranted.
The Peoples Bank of China (PBoC) was a key focus in Asia. They surprised analysts when they left the 1-year and 5-year Reserve Requirement Ratio (RRR) unchanged at 3.70% and 4.60%, respectively. That led to a steep rise in USDCNY.
Asia equity markets closed mixed. Japan’s Nikkei 225 and Australia’s ASX 200 were in positive territory while the major Chinese indexes lost ground. European bourses are posting gains while S&P 500 and DJIA futures point to a positive open on Wall Street.
EURUSD jumped to 1.0866 from 1.0785 before easing to 1.0844 in NY. The single currency is underpinned by the higher than expected German Producer Price Index and the greatly improved risk sentiment tone. However, French politics and the Russian invasion of Ukraine are capping gains.
GBPUSD rebounded with the broad US dollar weakness rising from 1.2996 to 1.3065 in early NY trading. The intraday technicals are mildly bullish while GBPUSD is above 1.3040, looking for further gains to 1.3160.
USDJPY surged to 129.40 on the back of the 10-year US Treasury yield touching 2.976, then plunged to 127.61 as yields dropped, exacerbated by profit-taking.
AUDUSD and NZDUSD climbed due to the improved risk tone. AUDUSD got an added lift from forecasts that the RBA would raise rates in July. NZDUSD was supported ahead of Thursday’s CPI data.
