- Bank of Canada hiked but Loonie rally stalls.
- EuroStat says Eurozone is in a recession.
- US dollar opens softer except against JPY.
USDCAD snapshot: open 1.3343-47, overnight range 1.3336-1.3374, close 1.3371, WTI $72.81, Gold $1946.52.
The Canadian dollar surged yesterday after the Bank of Canada surprised many by raising its overnight rate by 25 bps.
The Bank of Canada's decision sent shockwaves through New York as traders and analysts reassessed their projections for the upcoming FOMC meeting. It became increasingly evident that if both the Bank of Canada and the Reserve Bank of Australia resumed their rate hikes, despite earlier intentions to pause, the FOMC could be inclined to continue raising its rates.
Wall Street experienced pressure but closed with a mixed outcome. The S&P 500 recorded a loss of 0.27%, while the Dow Jones Industrial Average ended 0.30% higher. The standout performer was the US 10-year Treasury yield, which climbed from 3.68% to 3.81% yesterday.
The Bank of Canada chose to re-enter the rate-hiking arena after remaining on the sidelines since March. Policymakers expressed dissatisfaction with the sluggish decline in inflation, labeling it as "stubbornly high." They observed that Canada's economy outperformed expectations, driven by a rebound in services demand and a tight labor market.
According to their statement, "Based on the accumulation of evidence, the Governing Council decided to increase the policy interest rate, reflecting our belief that monetary policy was not sufficiently restrictive to rebalance supply and demand and achieve sustainable inflation at the 2% target."
Although the Canadian dollar initially rallied in response to the news, its gains were short-lived as attention shifted to the outlook for next week's FOMC meeting.
EURUSD traded within a range of 1.0698-1.0733. The news of a 0.1% contraction in Q1 GDP, which pushed the Eurozone economy into a technical recession, was largely disregarded.
GBPUSD climbed from 1.2438 to 1.2480, mirroring the broad movements of the US dollar. RICS Housing Price Balance data exceeded expectations, but still indicated weakness.
USDJPY traded in a range of 139.63 to 140.22, supported by rising US Treasury yields and the revised hawkish outlook for next week's FOMC meeting. Japanese Q1 GDP surpassed expectations, rising by 2.7% year-on-year.
AUDUSD rose from 0.6654 to 0.6689, primarily driven by US dollar weakness, further bolstered by the recently adopted hawkish stance of the RBA monetary policy. Australia's trade surplus narrowed to $11.15 billion from $14.82 billion.
Today, US weekly jobless claims and Wholesale Inventories are on tap.
