The Canadian dollar rallied, sank yesterday and consolidated its losses overnight. U.S. inflation jumped to 4.2% y/y in April, well above the 3.6% y/y expected.
FX markets churned. The U.S. dollar dropped immediately following the news, but a spike in Treasury yields, and falling stock markets, led to broad U.S. dollar demand.
USDCAD rallied from a low of $1.2048 yesterday to $1.2155 overnight but has since retreated. The USD/CAD rally is considered a correction as long as prices remain below $1.2200, suggesting a retest of $1.2048 support is likely.
Bank of Canada Governor Tiff Macklem delivers a speech today at 11:00 am. The topic is "The benefits of an inclusive economy." He is likely to be asked about the U.S. inflation numbers during the Q and A session, which could spark some Canadian dollar volatility.
U.S. Federal Reserve officials dismissed yesterday’s inflation report. Fed Vice Chair Richard Clarida said, "These one-time increases in prices are likely to have only transitory effects on underlying inflation, and I expect inflation to return to, or perhaps run somewhat above, our 2% longer-run goal in 2022 and 2023."
Bond traders took the inflation report at face value. They sold bonds, lifting 10-year Treasury yields from 1.61% to 1.70% overnight. The rise in yields underpinned the US dollar and sank the Canadian dollar in the process.
Bitcoin had a wild 24 hours. The cryptocurrency plunged to $46,294.72 from $57,024.25 after Tesla Chairman Elon Musk reversed an earlier decision to accept Bitcoin to purchase a Tesla. Musk has determined that mining for bitcoin is environmentally unfriendly due to its high use of fossil fuels.
EUR/USD traded in a $1.2052-$1.2105 range overnight as traders digest the U.S. inflation news. The single currency remains bullish as the uptrend line is intact above $1.2040. The Eurozone economic calendar is empty.
GBP/USD tested support in the $1.4000-10 area after falling from $1.4077 but rebounded to 1.4035 in New York. Bank of England Chief Economist Andy Haldane repeated his forecast that the UK economy could experience double-digit growth.
USDJPY traded in a 109.49-109.78 range, with gains underpinned by rising U.S. Treasury yields. The break above 109.30 is bullish following and targets 110.84.
Today’s U.S. data includes weekly jobless claims and Producer Price Index data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
