- Russia shuts off gas supply to Poland and Bulgaria
- China planning another round of stimulus measures
- Safe-haven demand lifts US dollar against G-10 majors.
USDCAD Snapshot: open 1.2833-37, overnight range 1.2780-1.2846, previous close 1.2826, WTI open $102.43, Gold open $1,895.38
The Canadian dollar is caught up in geopolitics and is the worse for wear. Aggressive Russian rhetoric about rising risks of World War III triggered a wave of safe-haven demand for US dollars yesterday. Wall Street stocks tumbled as did US Treasury yields.
USDCAD has risen over 3.0% since last Thursday, climbing from 1.2458 to 1.2846 overnight. The rally seems counter-intuitive considering the Bank of Canada’s hawkish interest rate outlook. Governor Tiff Macklem left the door open to a 0.75% rate hike at one of the next two monetary policy meetings, which would put Canadian rates above those in the US if it occurred. The worst case is for Canadian rate hikes to match those of the Fed, which eliminates a US yield advantage.
Canadian dollar traders are also ignoring steady to firm oil prices. West Texas Intermediate jumped from $97.20/barrel yesterday to $102.96 today on news that China is planning a new round of economic stimulus, which will include bullions for infrastructure.
Russia stopped gas shipments to Poland and Bulgaria until those countries make payments in rubles. European equity traders were unfazed and bought stocks, although the major Indexes are below their best levels. S&P 500 futures point to a positive open on Wall Street.
The short term USDCAD technicals are bullish above 1.2650 but the longer-term studies warn of significant resistance between the 1.2780-1.3030 zone. As long as prices are below the top, there is plenty of downside risk for USDCAD.
Risk sentiment improved in Asia following China’s announcement. President Xi Jinping told officials to boost spending on infrastructure and energy to lift flagging growth.
EURUSD is at 1.0576 in NY trading, down from 1.0654 in Asia due to recessionary fears from Russia’s invasion of Ukraine and gas supply disruption.
GBPUSD is in the middle of its 1.2537-1.2601 range due to broad US dollar demand and recent data raising the risk of a recession. USDJPY dropped to 126.96 on safe-haven demand but rebounding US Treasury yields lifted prices to 128.18 in NY.
AUDUSD rallied briefly, reaching 0.7189, after higher than expected inflation data led to forecasts that the RBA would raise interest rates at next week’s meeting. Prices retreated to 0.7137 in early NY after S&P 500 futures pared earlier gains.
