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USD / CAD - Canadian dollar drops on renewed risk aversion

- Risk sentiment sours after Credit Suisse Bank stock drops 20% today.

- US Retail Sales and PPI data ahead

- US Dollar opens higher and extends gains in early trading.

USDCAD snapshot open 1.3713-17, overnight range 1.3662-1.3761, close 1.3686

The Canadian dollar traded quietly in Asia then plunged in Europe/NY trading. The move was due to a fresh wave of negative risk sentiment washing over markets thanks to escalating fears about the health of Switzerland’s second largest bank.

Shares of Credit Suisse Bank dropped 20% in European trading, raising fears that other European financial institutions may have similar problems.

The news comes at a time when global markets were feeling a tad better after the US government intervened to avoid a banking crisis due to the collapse of Silicon Valley Bank.

Speculation that the FOMC would leave interest rates unchanged at next week’s meeting was put to rest after the February inflation report was released. Headline CPI rose 0.4% m/m compared to 0.5% in January, but the more important Core-CPI rose o.5% m/m compared to the previous month reading of 0.4%.

Fed officials will not be happy with the result and are expected to hike rates by 25 bps. The lingering negativity from the SVB collapse has taken a 50 bp hike off the table.

US Retail Sales are expected to fall 0.3% m/m, while Retail Sales ex-auto’s is expected to drop 0.1% m/m (previous 2.3%). PPI is forecast at 5.2% y/y, a tad lower than the 5.4% y/y result in January.

EURUSD traded defensively, falling from 1.0759 to 1.0632 due to fears of contagion risks from the Credit Suisse woes. Traders ignored higher than expected January Industrial production data (0.9% y/y vs forecast 0.2% y/y). The ECB is still expected to hike rates 50 bps tomorrow.

GBPUSD dropped to 1.2071 from 1.2181 due to the latest wave of negative risk sentiment. UK traders are awaiting the latest budget and praying that Chancellor Jeremy Hunt doesn’t repeat the folly of his predecessor Kwasi Kwarteng. Traders expect the Bank of England to hike rates by 25 bps next week.

USDJPY peaked at 135.10 in Asia and dropped steadily to 133.40 in early NY trading. Safe-haven demand for yen due to European bank concerns weighed on prices.

AUDUSD is trading at the bottom of its overnight 0.6638-0.6710 range due to broad risk aversion sentiment.