- Oil rally capped by IEA outlook.
- Risk sentiment is positive.
- US dollar opens defensively on equity rally.
USDCAD: open 1.3479-83, overnight range 1.3461-1.3486, close 1.3464, WTI $77.33, Gold, $2007.21
The Canadian dollar flipped from bearish to bullish yesterday after Wall Street traders bought stocks and drove the S&P 500 to a new record closing level of 5029.73. The rally occurred despite this week's data that suggested the Fed would be in no hurry to cut interest rates. Atlanta Fed President Raphael Bostic said as much, claiming that there is no urgency for the Fed to cut rates (obviously, his mortgage renewal isn’t anytime soon) as the strong economy suggests it is better to be patient.
Bank economists are pushing out their forecasts for the first Fed rate cut. The CME FedWatch tool points to a June rate cut. Nordea Bank economists changed their forecast for the first 25 bp rate cut to September because “Recent price and activity data out of the US imply that the FOMC can no longer be sure inflation is on a fast track to 2%.”
The Canadian dollar got a bit of support from oil prices, but that support has since evaporated. WTI climbed from $76.02/b yesterday to $78.20/b overnight, then dropped to $77.44 in NY after the International Energy Administration said that the oil market is likely to be in surplus for all of 2024.
Canadian dollar direction is at the mercy of global risk sentiment, and that sentiment is constantly shifting. The S&P rally fostered a risk-on environment, but the back-up in the US 10-year Treasury yield to 4.272% today has taken the bloom off the rose.
EURUSD traded in a 1.0752-1.0777 range. ECB President Christine Lagarde and Board Member Isabel Schnabel expressed the need for caution about reducing interest rates.
GBPUSD traded in a 1.2574-1.2606 range overnight, despite a big rebound in January Retail Sales (actual 3.4% m/m vs. -3.3% in December).
USDJPY is near the top of its 149.83-150.37 range, supported by rising 10-year Treasury yields, with the 10-year Treasury yield at 4.272% compared to yesterday’s low of 4.187%.
AUDUSD traded sideways in a 0.6507-0.6530 band, supported by the improved risk sentiment tone.
The US Producer Price Index (PPI) is expected to have risen 0.1% m/m in January compared to -0.2% in December, and the Michigan Consumer Sentiment index is expected at 80 (previous 79).
Canada and the US enjoy an extended weekend with markets in both countries closed on Monday.
