USD / CAD - Canadian Dollar Trapped in Risk Loop

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- Loonie swings between large gains and losses vs USD

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- US dollar opens higher, AUD loses nearly 2.0%

USDCAD Snapshot: open 1.3018-22, overnight range 1.2979-1.3045, previous close 1.2993, WTI open $103.92 Gold open $1,848.50

The Canadian dollar trades erratically after being caught in a risk-on, risk-off loop. Yesterday’s US inflation report unleashed a ball of confusion in financial markets.

USDCAD rallied from 1.2955 to 1.3038 after April CPI rose 8.3% y/y rather than the 8.1% expected.

That resulted in the US 10-year Treasury yield jumping to 3.08% from 2.93%, which also knocked the S&P 500 index lower.

None of those moves lasted and my mid-morning USDCAD was trading at 1.2923. But it didn’t end there.

Sentiment changed again. Suddenly, the focus shifted to the increase in CPI, ex-food, and energy. That number, 0.6% m/m, was far hotter than expected and well above the 0.3% seen in March.

The prospect of sharply higher US interest rates sent the S&P 500 tumbling and sparked risk-aversion demand for US dollars. Safe-haven demand knocked the US 10-year Treasury yield to 2.83% overnight, USDCAD rallied to close at 1.2993, then extended those gains to 1.3045 just before NY opened today.

Despite the sharp rise in USDCAD, the Canadian dollar performed admirably compared to the other commodity bloc currencies, AUD and NZD. The Australian dollar lost 1.98% since Wednesday’s NY open, while the New Zealand dollar fell 1.58%. The Canadian dollar only lost 0.58% .

The Canadian dollar's performance is due to support from steady to firm oil prices. West Texas Intermediate (WTI) is at a seven-year peak and prices are expected to remain firm for the rest of the year. The ongoing Russian sanctions on oil exports and hopes for the latest round of Chinese government fiscal stimulus are supporting prices. WTI Gains are tempered by rising global recession fears due to interest rate hikes.

Asian equity markets followed Wall Street lower. Japan’s Nikkei 225 closed with a 1.77% loss while Australia’s ASX 200 index dropped 1.75%. European bourses are deep in the red. The UK FTSE 100 is down 2.0%, while Germany’s DAX index has lost 1.78%. S&P 500 futures are lower suggesting a negative open on Wall Street.

EURUSD traders fell from 1.0529 in Asia to 1.0423 just before NY opened due to risk aversion driving S&P 500 futures lower.

GBPUSD dropped to 1.2167 from 1.2252 before retracing to 1.2207 in early NY. Following a series of weaker than expected economic reports which included March GDP (actual-0.1% m/m, forecast of 0.1%.), Manufacturing Production and Industrial Production. In addition, Brexit issues have resurfaced with the EU threatening to suspend the Brexit trade deal.

USDJPY fell to 128.41 from 130.05 due to safe-haven demand for yen and the lower US 10-year Treasury yield. The
AUDUSD and NZDUSD traded with a negative bias. Traders ignored the rise in New Zealand inflation expectations.

US PPI and weekly jobless claims are ahead.

Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates