March came in like a bear and went out like a bull, at least that’s how the US dollar index (DXY) acted. Wall Street equities were choppy but directionless until the middle of the month when they rallied with the S&P 500 finishing with a 2.28% gain. Gold prices climbed steadily and gained $209 to finish the month with a 10% gain.
Traders embraced the latest FOMC Summary of Projections which showed policymakers leaving their outlook for three rate cuts in 2024 unchanged. The greenback’s gains were due to speculation that other G-10 central banks would begin easing monetary policy ahead of the Fed. That point was driven home on March 21 when the Swiss National Bank (SNB) surprised markets with a 25 bp rate cut to 1.50%.
The markets are expected to be rather choppy, fueled by tier one economic reports and a flock of Fed officials speaking about the economy and inflation, ahead of the May 1 FOMC meeting.
The USD and Federal Reserve
April 1 is April Fools day, but the slate of Fed officials delivering speeches and interviews brings the risk that many market participants may be fooled by what they hear. Recent economic reports have lifted the odds for a June rate to 62% despite Fed Chair Jerome Powell telling traders that the strength of the economy and labor market is giving policymakers more confidence that inflation is coming down and is in line with “our expectations.” His colleague, Governor Christopher Waller, said on March 27, that he was in “no rush” to cut rates and that he only expected two cuts in 2024.
The US economic data and Fed comments will dictate US dollar direction ahead of the May 1 FOMC meeting.
The Canadian Dollar and Bank of Canada
The Canadian dollar traded choppily throughout March, but when the dust settled, USDCAD remained in its well-travelled 1.3420 to 1.3615 range, which has contained price action since the beginning of February. Things do not look like they will change in April. The Bank of Canada meeting on April 10 could be entertaining. Policymakers are widely expected to leave rates unchanged. The latest Business Outlook Survey suggests a cautiously optimistic view from Canadian businesses which may encourage the BoC to issue a dovish monetary policy statement and setting the stage for possibly a June rate cut.
It won’t be an easy decision. Canada has a severe housing shortage, and interest rate cuts could reignite bidding wars and steep price increases. Canada’s economy grew faster than expected in January and is forecast to have a strong February as well. In addition, if Canada's employment report tops expectations, the BoC would struggle to justify cutting rates. That dilemma, combined with the US rate outlook, suggests USDCAD will continue to trade in the 1.3360-1.3615 range.
Oil Price
Oil traders are feeling rather perky. West Texas Intermediate (WTI) oil prices consolidated February’s gains in the first half of March, and then they took off, rising from $76.88/barrel to finish the month at $83.12/b. The gains were driven by the Opec production cuts which were previously announced and because of heightened supply risks stemming from heightened geopolitical tensions. Houthi Rebels are firing missiles at Red Sea shipping, which is forcing many vessels to travel around the Cape of Good Hope, a longer and more expensive journey. Traders are also hoping that Chinese crude demand increases.
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Bank 2024-USD/CAD Q2 2024-USD/CAD Q3
Scotiabank* 1.3300 1.2800
BMO 1.3400 1.3300
CIBC 1.3100 1.2900
TD Bank* 1.3600 1.3600
National Bank 1.3800 1.4100
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
