- Bank of Canada meeting ahead
- China steps up pace of Covid-zero retreat
- US dollar bid but off its best levels
USDCAD snapshot open 1.3684-88, overnight range 1.3634-1.3698, close 1.3651, WTI $73.61, Gold $1772.42
The Canadian dollar extended yesterday’s losses overnight due to increasing chatter about rising recession risks in the US. That chatter fueled stock market and commodity price losses.
USDCAD rose from yesterday’s low of 1.3573 to 1.3698 in very early NY trading today, coinciding with West Texas Intermediate (WTI) oil prices falling from $76.89/b Tuesday morning to $72.72/b overnight, Prices have since climbed to $74.27 on profit-taking. Price action is exaggerated due to thin markets.
Oil price woes stem from rising US recession risks which were amplified by comments from the top dogs at Goldman Sachs and JP Morgan on Tuesday. Both leaders predicted a US recession in 2023, which in a slow news day, spooked traders. WTI was also pressured due to speculation that the G-7 price cap on Russian seaborne oil shipments would drive prices lower, even as Opec is debating another production cut
Oil prices didn’t get any support after the American Petroleum Institute (API reported US crude inventories fell by 6.42 million barrels in the week ending December 3.
The final Bank of Canada (BoC) monetary policy meeting of 2022 is eagerly awaited. Analysts are divided as to whether policymakers raise interest rates by 25 or 50 bps. There is a lot of uncertainty around today’s statement only update because the BoC has done a very poor job communicating monetary policy. At times, the results have been more hawkish that what policymakers alluded to, and other times more dovish.
The argument for a 50-bps rate hike is due to the stronger than expected labour picture while supply chains are still recovering from earlier disruptions, which together, anchors inflation.
Those in the 25-bps camp believe the BoC will adopt the RBA approach slow the pace of rate hikes due to the “lag-effect” of previous rate increases on the economy.
USDCAD will rally towards 1.3850 following a 25 bp hike as traders are expecting a 50 bp or higher hike from the Fed, especially in a low oil price environment. Gains may be tempered on the promise of more hikes to come.
A 50 bp hike may lead USDCAD to a test of 1.3550 but losses will be limited due to low oil prices, and US recession risks.
The US dollar opened on a mixed note against the G-10 major currencies with EUR and GBP posting gains while the commodity currency bloc retreats.
There are no top tier US economic reports today.
