- UK closed in honor of King Charles coronation.
- Market focus in on US CPI on Wednesday
- US dollar opens on mixed note-CAD outperforms.
USDCAD snapshot: open 1.3340-44, overnight range 1.3334-1.3386, close 1.3376, WTI $72.83, Gold $2022.75
The Canadian dollar is on a tear. The combination of a dovish Fed and a hawkish Bank of Canada (BoC) is a potent mix.
Canada’s employment report on Friday was better than expected, suggesting the economy was more resilient than previously thought.
Canada gained 41,400 jobs in April (forecast 20,000) while the unemployment rate remained unchanged at 5.0%.
On Thursday, BoC Governor Tiff Macklem warned that interest rates could increase if inflation gets sticky above the 2.0% target. Traders concluded that even if the BoC hiked rates again, the economy would avoid tipping into a recession.
Nevertheless, it was developments south of the border that really boosted demand for the Canadian dollar. The US nonfarm payroll report surprised to the upside, adding 253,000 jobs rather than the 179,000 expected. Average hourly earnings ticked up to 4.4% m/m compared to 4.3% in March.
Normally, a surge in NFP would lead to US dollar demand on anticipation of higher interest rates. That wasn’t the case on Friday. The data was interpreted to mean that the US economy continued to be robust. Evidence that inflation has peaked reinforces the belief that the Fed will cut interest rates by 125 bps by January 2024.
EURUSD traded in a 1.1015-1.1053 range. The single currency continues to benefit from divergent Fed and ECB monetary policy however a large, long EURUSD positioning hampers gains. German Industrial Production fell 3.4% m/m in March due to lower auto production while Sentix Investor Confidence Index dipped to -13.1 (forecast -8.0).
GBPUSD traded in a 1.2627-1.2668 range. Prices are supported by expectations that the Bank of England will hike rates 25 bps on Thursday, followed by another 50-75 bp rate bump due to elevated inflation (10.0% y/y).
USDJPY rallied Friday following the NFP report. This was partly because the US 10-year Treasury yield climbed to 3.462% from Friday’s low of 3.397% and USDJPY demand as some safe-haven trades from US banking crisis fears were unwound.
AUDUSD firmed in a 0.6742-0.6793 range, continuing to benefit from the surprise RBA rate hike and hawkish commentary. This contrasts with market expectations for Fed rates.
The US Loan Officer Survey will get some attention as it provides some clues into tightening credit conditions.
