- Global equities modestly higher following Fed Powell comments
- Hostile Russian rhetoric leaves EURUSD on the defensive
- US dollar opens with small losses compared to Thursday
USDCAD Snapshot: open 1.3015-19, overnight range 1.2994-1.3047, previous close 1.3045, WTI open $107.73 Gold open $1,822.72
The Canadian dollar managed to claw back some losses overnight but remains sharply lower from where it was on Tuesday. The Loonie’s direction is determined by broad risk sentiment, measured by S&P 500 price action, and that sentiment has been negative.
Yesterday, the S&P 500 dropped sharply, and headlines warned that the index was approaching “bear-market” territory below 3850. (A bear market occurs when prices fall more than 10% from the latest peak).
Comments from Fed Chair Jerome Powell derailed the sell-off and the S&P 500 rebounded to close almost unchanged. Mr Powell appeared to push back against the notion of 0.75% Fed rate hikes.
He replied, “I said we weren’t actively considering that when asked about such a move. But I said what we were actively considering, and this is just a factual recitation of what happened at the meeting, was a 50-basis point increase, that’s a half a percentage point increase, the first one in more than 20 years. And that we thought that if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis point increases at the next two meetings, so. But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.”
After Powell's comments, the shift in the risk sentiment tone knocked the US dollar lower and boosted commodity prices. West Texas Intermediate rallied to $108.41/barrel overnight, from a low of $102.80 /b yesterday. Inflammatory rhetoric from Russia warning of supply cuts to European users has underpinned prices as well.
The Canadian dollar may have benefited from the rise in oil prices, but Bank of Canada Deputy Governor Toni Gravelle suggests oil prices are having a diminishing impact on the currency.
In yesterday’s speech he said that investor expectations for lower demand for fossil fuels has reduced investment in the energy sector to what the BoC believes is less than half of what it used to be.
Meanwhile, the US dollar is trading with a modestly negative bias as traders book profits and square positions into the weekend.
Michigan Consumer Sentiment is the only US data of note today.
