- BoC and Fed rate outlooks diverge.
- Gold climbs to new all-time high
- US dollar opens with modest gains-EUR sinks
USDCAD: open 1.3737, overnight range 1.3682-1.3743, close 1.3689, WTI $86.03, Gold, $2397.73
The Canadian dollar drifted steadily lower overnight, sinking under the weight of sharply diverging Canadian and US interest rate outlooks. A spate of soft economic reports and a dovish Bank of Canada monetary policy meeting has lifted the June rate cut odds to 78%.
Things are far different south of the border. The US economy appears to be robust while the decline in inflation has stalled. That forced many economists and analysts to revise their Fed interest rate outlooks. At the beginning of the year, many expected about 150 bps of rate cuts this year. Today, major players like Goldman Sachs, JPMorgan, and Bank of America are forecasting just one cut and not until December.
The divergent interest rate views fueled the Canadian dollar sell-off. Things may change next week when Canada’s inflation report is available and after the Federal budget details are released. Justin Trudeau and other Liberal cabinet members have already announced massive new spending programs or large increases to existing programs which may have preempted the need for the Bank of Canada to cut rates by 25 bps.
Investors have taken a shine to gold and lifted prices to $2,400.73, a new all-time high. The rally has a lot to do with other G-10 central banks switching to easing mode and also because of increased geopolitical tensions.
EURUSD traded poorly and fell to 1.0650 from 1.0730 due to expectations that the ECB will cut rates in June. ECB President Christine Lagarde said, “If our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.”
GBPUSD traded bearishly in a 1.2480-1.2559 band and didn’t get much support from improving UK economic data. GDP rose 0.1% and Manufacturing and Industrial Production were better than expected.
USDJPY traded sideways in a 152.87-153.40 range with gains limited by fears of Bank of Japan intervention.
AUDUSD traded negatively in a 0.6503-0.6543 band due to disappointing Chinese trade data and broad-based US dollar demand.
Today’s US data includes the Michigan Consumer Sentiment Index (forecast 79, previous 79.4)
