- Hawkish Fed, Russian aggression, China covid trigger “risk-off” trading
- EURUSD ignores data and French politics
- US dollar soars on safe-haven demand
USDCAD Snapshot: open 1.2744-48, overnight range 1.2709-1.2755, previous close 1.2710, WTI open $97.75, Gold open $1,917.40
The Canadian dollar retreated Friday and continued to slide overnight. The currency suffered after a slew of destabilizing market influences overwhelmed traders, sending them heading for the exit.
Russian President Vladimir Putin seemed to end his farce of peace talks with Ukraine when he said the talks were at a “dead end.” The FT wrote that Putin has shifted his strategy to grab as much land as possible. Putin also ratcheted up the “nuclear rhetoric” and announced it would be deploying the world’s longest Intercontinental ballistic missile, Satan II, in the fall. One missile carries enough nuclear warheads to wipe out Britain or France.
Chinese developments roiled markets as well. Beijing recorded 26 Covid cases on the weekend and authorities kicked off a massive testing program. Traders fear the heavy hand of the Xi Jinping dictatorship will lead to Beijing getting locked down, just like Shanghai. If so, it would exacerbate China’s slowing economy.
The Peoples Bank of China essentially devalued the yuan.
USDCNY traded at 6.3390 March 31, and it traded at 6.5770 today, a 3.8% gain. The move weighed on the commodity currency bloc, CAD, AUD, and NZD.
Concerns about a sharper economic slowdown in China and the outlook for higher US rates overshadowed concerns about supply disruptions from Russian sanctions and productions shutdowns in Libya and took a toll on oil prices.
West Texas Intermediate dropped 11.3% since last Tuesday, falling from $108.90 /barrel to $96.58/b overnight. The drop exacerbated Canadian dollar losses.
The Canadian dollar also suffered from expectations of sharply higher US interest rates. Fed Chair Jerome Powell finally realized that his view that inflation was “transient” was out to lunch, and he raced to the front of the rate hike line. Markets are pricing in four 0.50% rate hikes in 2022.
The US rate hike view as underpinned US dollar gains against the G-10 currencies. Traders will get a reminder that the Bank of Canada interest rate outlook is as aggressive or even more aggressive than the Fed’s when BoC governor Tiff Macklem addresses the House finance Committee today.
There are not any notable US economic reports on tap today which means Wall Street will determine FX direction. S&P 500 futures are clawing back overnight losses in early NY trading but remain deep in negative territory.
