- BoC issues hawkish monetary policy statement
- European FX liquidity poor due to UK Platinum Jubilee holiday
- US dollar opens firmer but retreats from overnight peak
USDCAD Snapshot: open 1.2657-62, overnight range 1.2641-1.2684, close 1.2658, WTI open $112.66, Gold open $1,854.08
The Canadian dollar attempted to rally following the Bank of Canada’s rate hike but failed as the move was well-telegraphed ahead of time.
The BoC raised the overnight rate by 0.50% to 1.50% and issued a hawkish statement which focuses on inflation.
The statement said “CPI inflation reached 6.8% for the month of April – well above the Bank’s forecast – and will likely move even higher in the near term before beginning to ease. As pervasive input price pressures feed through into consumer prices, inflation continues to broaden, with core measures of inflation ranging between 3.2% and 5.1%. Almost 70% of CPI categories now show inflation above 3%. The risk of elevated inflation becoming entrenched has risen.”
The statement alluded to more aggressive rate hikes in the future, warning “ the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target. That suggests a 0.75% hike in July is quite possible.
The BoC news took a back seat to US developments. Fed policymakers James Bullard and Thomas Barkin kept rate hikes in focus and pushed back against any notions the FOMC will pause rate hikes in September. Mr Barkin also pointed out that balance sheet reduction also tightens policy.
Treasury yields surged on the comments and after US data suggested the economy was resilient. The 10-year yield jumped to 2.951% from 2.864% but eased to 2.90% in early NY trading today.
The major Asian equity indexes followed Wall Street’s lead and closed with small losses. Japan’s Nikkei 225 index lost 0.16% while Australia’s ASX 200 shed 0.80%. European bourses opened flat then rallied, led by a 1.30% gain in the French CAC Index. S&P 500 and DJIA futures are posting modest gains. Oil prices are down 2.58% while gold rose 0.55%.
WTI oil fell from $114.94 to $111.28, despite API reporting US weekly crude inventories dropped 1.18 million barrels. Prices were weighed down by a report that Saudi Arabia may raise production if Russia’s production is greatly reduced.
The major G-10 currency pairs are trading sideways, while attempting to recoup yesterday’s losses.
The US employment picture will be front and center this morning. Challenger job cuts, ADP employment change report (forecast 300,000), and weekly jobless claims (forecast 210,000) are on tap.
