- Canada February economic growth expected to slow to 0.2%.
- Bank of Japan leaves rates unchanged but announces monetary policy review.
- US dollar opens with gains fueled by dovish BoJ.
USDCAD snapshot: open 1.3653-57, overnight range 1.3593-1.3666, close 1.3591, WTI $74.92, Gold $1983.61
The Canadian dollar traded negatively overnight. It was not alone. All the major G-10 currencies suffered a similar fate after the Bank of Japan surprised markets with what was considered a dovish outlook.
The Bank of Japan its yield curve control (YCC) and policy interest rate unchanged. That was expected. However, traders expected a hawkish tweak to the outlook. It didn’t happen. Instead the market learned that policymakers planned a long, drawn-out monetary policy review which is anticipated to last between twelve and eighteen months.
USDJPY soared on the news rising from 133.37 to 136.18, and that move fueled broad US dollar demand against the rest of the G-10 major currencies.
Canadian dollar support is getting shored up by oil prices. West Texas Intermediate bounced from its session low of $73.96/barrel to $75/15 in NY. Analysts are suggesting that technical selling and month-end flows are behind the recent oil price slippage, but the downside should be limited due to lower Opec production and renewed Chinese demand.
The US economy grew slower than expected in Q1 (actual 1.1% vs forecast 2.0%) which reinforced concerns about a recession. However, the details revealed consumer spending was holding up, evidenced by a 3.7% gain Durable Goods Orders.
The spotlight shifts to this morning’s US PCE price index data. A higher than expected result (Core-PCE 0.3% m/m vs February 0.3%), would increase the pressure on the Fed to keep raising rates which would also support the US dollar.
EURUSD ticked higher in early Asia trading then dropped from 1.1039 to 1.0978 due to broad US dollar demand after the BoJ meeting, and weak German GDP data showing the economy is stagnating. In addition, there is a $1 billion, 1.1000 EURUSD option strike expiring at 10:00 am EDT.
GBPUSD traded in a 1.2448-1.2503 range due to broad US dollar strength. GBPUSD has been underpinned by an upgraded outlook for the UK economy, and the prospect of a 25 bp BoE rate hike on May 11.
AUDUSD plunged from 0.6641in Asia to 0.6580 in NY in the wake of the dovish BoJ decision and ensuing US dollar surge.
