USD / CAD - Canadian Dollar Sinks as Treasury Yields Soar

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- US nonfarm payrolls (forecast 391k) and Canada jobs (55k) ahead

- Wall Street futures still bleeding, European equities in the red

- USD opens firm, consolidating yesterday’s gains

USDCAD Snapshot: open 1.2821-25, overnight range 1.2817-1.2865, previous close 1.2837, WTI open $110.81, Gold open $1,883.44

The Canadian dollar gave back all of its post-FOMC gains yesterday and fell further overnight.

Yesterday, a surge in US 10-year bond yields sparked a broad, bordering on “panic,” stampede out of the so-called “risk assets.” Wall Street collapsed, led by a 5.0% plunge in the NASDAQ. The S&P 500 lost 3.57%, and the Dow Jones Industrial Average fell over 1,000 points.

The US dollar soared. The US Dollar Index (USDX) reached a 20-year peak when it touched 104.11overnight. The index retreated from the peak, but the trend is higher above 102.00.

Bond traders sparked yesterday’s market rout. The US 10-year yield slipped to 2.925% after the FOMC meeting when analysts believed the Fed could succeed in engineering a “soft landing” for the economy. Yesterday, they changed their minds. The Fed guessed wrong about the breadth of post-pandemic price increases, and many believe, including some policymakers, that the Fed is behind the curve. The bond traders concluded that rates would have to rise well above the “neutral rate” (2.25%-2.5%) and drove the 10-year yield to 3.0%.

The US dollar soared, and the Canadian dollar was collateral damage. The Canadian dollar outperformed the other commodity currencies (AUD, NZD) overnight because oil prices surged.

West Texas Intermediate climbed to $110.80 from $107.28 on reports that the EU is close to a deal to embargo Russian energy products. In addition, Opec may have raised its production quota by 400,000 barrels/day starting in June. Still, production difficulties mean the cartel cannot achieve the new level, which further underpinned prices.

It’s employment data day in Canada and the US.

Today’s US nonfarm payrolls report (forecast 391,000 vs 431,000 in March) may take a backseat to the unemployment rate. It is expected to tick down to 3.4% from 3.5%, which is considered “full-employment.”

The job market remains strong, suggesting the Fed can fight inflation more aggressively.

Canada’s Labour Force Survey is expected to show a gain of 55,000 jobs (previously 72,500) and a dip in the unemployment rate to 5.2% from 5.3%. The results should not matter as they won’t derail the Bank of Canada’s plans to raise rates aggressively at the next few meetings.

USDCAD price action will be dictated by Wall Street today




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