- US dollar eases into Easter long weekend
- ECB monetary policy meeting ahead
- CAD rallies post-BoC
USDCAD Snapshot: open 1.2544-48, overnight range 1.2542-1.2568, close 1.2563, WTI open $103.30, Gold open $1,969.07
The Canadian dollar consolidates yesterday’s gains following the Bank of Canada monetary policy meeting.
The Bank of Canada did not surprise anyone when it raised the overnight rate by 0.50% to 1.0%. Deputy Governor Sharon Kozicki had suggested the move was likely in a speech on March 25.
The media is making a big fuss about the “outsized hike,” although in reality, it was a fairly timid move.
You will recall that the BoC cut rates three times in March 2020, knocking the overnight rate to 0.25% from 1.75%, as part of a multi-pronged effort to combat the impact of the pandemic. Governor Tiff Macklem admitted the pandemic was over at the March 2022 meeting and claimed that the bank’s key focus was fighting rising inflation. If so, the overnight rate should have been hiked to 1.75%.
The BoC confirmed that the 0.50 bp rate hike was not the last, saying, “interest rates will need to rise further.” They also announced quantitative tightening would begin April 26. The BoC upgraded its 2022 growth forecast to 4.2% compared to the consensus forecast of 3.5%.
They also raised their inflation forecast, saying “CPI inflation is now expected to average almost 6% in the first half of 2022 and remain well above the control range throughout this year. It is then expected to ease to about 2½% in the second half of 2023 and return to the 2% target in 2024. There is an increasing risk that expectations of elevated inflation could become entrenched.”
USDCAD dropped from 1.2674 to 1.2557 yesterday due to the BoC and a rebound in global risk sentiment.
The US 10-year Treasury yield plunged to 2.65% from 2.72% in part because of articles and comments by Fed officials suggesting that inflation has peaked. Vice Chair Lael Brainard believed Tuesday’s weaker than expected core-inflation reading was a sign of some “cooling,” while Fed Governor Christopher Waller opined “inflation has pretty much peaked.”
EURUSD managed a small rally overnight, rising from 1.0884 to 1.0923. Gains were limited ahead of today’s ECB monetary policy meeting. ECB officials are hampered by the Russian/Ukraine war slowing growth while ongoing supply chain disruptions raise prices.
GBPUSD is underpinned by yesterday's high inflation reading and traded in a 1.3114-1.3146 range.
USDJPY dropped to 125.09 from 125.70, coinciding with US Treasury yields falling.
AUDUSD gains were capped after a weaker than expected unemployment report.
Today’s US data includes weekly jobless claims, March retail sales, and Michigan consumer confidence.
Most major markets are closed Friday for Easter weekend.
