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USD / CAD - Canadian Dollar Sinks as US Treasury Yields Rise

- Hawkish Fed-speak lifts the 10-year US Treasury yield to 2.925%

- Canada Retail Sales expected to rise just 0.3% m/m

- US dollar in demand across the board

USDCAD Snapshot open 1.2973-77, overnight range 1.2946-1.2979, close 1.2947, WTI oil $89.48, Gold $1753.37

The Canadian dollar is under pressure due to surging US Treasury yields fueling broad-based US dollar demand. Blame St Louis Fed President James Bullard for causing the commotion.

Mr Bullard told the Wall Street Journal, “I would lean toward the 75 basis points at this point. Again, I think we’ve got relatively good reads on the economy, and we’ve got very high inflation, so I think it would make sense to continue to get the policy rate higher and into restrictive territory.”

Other Fed officials got into the act. Kansas City Fed President Ester George did not specify the size of a rate hike, but she wants to see more. She said, “The question of how fast that has to happen is something my colleagues and I will continue to debate.”

Neel Kashkari, Cleveland Fed President, added recession concerns into the mix when he opined that a recession may be unavoidable if inflation is to be driven down.

Canada June Retail Sales are forecast to rise just 0.3%m/m and Retail Sales, ex-autos to rise 0.9% m/m. The results are below the May numbers due to fading post-pandemic retail demand and will not impact USDCAD trading.

USDCAD broke out of its nearly two-week-long 1.2750-1.2950 range yesterday, following the Fed—speak and Treasury yield rise. Prices climbed steadily overnight and cracked above 1.3000 in NY trading today. A decisive move above the 1.3030-50 range would extend gains to 1.3150.

If you think inflation in Canada (7.7% y/y) is a problem, look at Turkey. That country’s inflation rate is around 80%, thanks to its wack-a-doodle President and his cockamamie monetary policy views. Mr Erdogan believes cutting interest rates will boost exports, employment, investments, and growth. It hasn’t. The Central Bank of Turkey (under orders from Erdogan) cut its policy rate from 19% in September 2021 to 13% yesterday. Inflation has soared from 21% to 80%.

EURUSD is at the bottom of its 1.0050-1.0095 range enroute to a test of the psychologically important 1.000 level. EURUSD is suffering from widening interest rate spreads between the ECB and the Fed and European recession risks.

GBPUSD sank to 1.1820 from 1.2077 on Thursday. Broad US dollar strength and a looming UK recession are weighing on the currency.

USDJPY soared on rising US Treasury yields, climbing to 1.3713 from 135.72. Japanese inflation data was not a factor. (July CPI 2.6% y/y, vs forecast 2.2%).

AUDUSD and NZDUSD are under pressure due to US dollar demand.

The US data calendar is empty.