- Geopolitical tensions spooking markets
- FOMC and BoC meetings on Wednesday
- Safe haven demand lifts USD, CHF, and JPY, sinks commodity currency bloc
USDCAD Snapshot: Open 1.2603-07, Overnight Range-1.2557-1.2614, previous close 1.2581, WTI open $84.95, Gold open $1840.24
The Canadian dollar is under pressure as geopolitical tensions rise. It is not alone. The major G-10 currencies are trading lower against the US dollar except for the Japanese yen and Swiss franc, traditional safe-haven currencies.
The negative risk sentiment is due to last week’s steep plunge in Wall Street equities, which continued overnight. Dow Jones Industrial Average and S&P 500 futures are in the red, suggesting a negative open. European bourses are also suffering.
The chief catalyst for the sell-off is the rising fear of a hawkish FOMC meeting on Wednesday. A parade of policymakers delivered hawkish remarks ahead of the “speech black-out” that began a week ago, as higher than expected inflation readings raised fears that the Fed was “behind the curve.”
Fed Governor Christopher Waller said ““three hikes is still a good baseline, we will have to see what inflation looks like in the second half of the year”. “If it continues to be high, the case will be made for four, maybe five hikes.”
Philadelphia Fed President Patrick Harker forecasted three rate hikes in 2022 and was open to lift-off in March.
Lately, some analysts speculated that the Fed might raise rates by 0.50% at the March meeting, which provided another layer of support to the greenback while unnerving equity traders.
Risk sentiment soured further on the weekend after the UK and US governments issued orders for families of embassy staff in Ukraine to leave the country due to fears of an imminent invasion by Russia.
NATO is doing its bit to inflame tensions by putting extra forces on standby and sending ships and jets to Eastern Europe. The Ukraine is not even a member of NATO.
Russia is incensed by US and NATO plans for installing missiles in Ukraine, which they see as a threat. Historians remember how the US brought the world to the brink of nuclear war when Russia tried to install missile in Cuba. Same issue just a different era.
EURUSD traded in a 1.1301-1.1344 range, weighed down by bearish technicals and monetary policy differences between the ECB and the Fed.
GBPUSD is trading at the bottom of its overnight 1.3486-1.3563 range due to the US rate outlook, weak UK PMI data, and bearish technicals.
USDJPY dropped to 113.48 from 113.97 due to lower US 10-year Treasury yields, which fell to 1.739% from 1.768% on Friday and due to safe-haven demand for yen.
AUDUSD traded in a 0.7127-.7186 range, weighed down by weak PMI data and bearish risk sentiment. NZDUSD followed suit.
The US and Canadian economic calendars are empty.
