- Reuters reported that US and Iran agreed to another ceasefire
- Month end portfolio flows may weigh on US dollar.
- US dollar drifts lower on tepid, but improved global risk sentiment
USDCAD open: 1.3805, overnight range 1.3778-1.3808, close 1.3785, WTI 87.60, Gold 4,530.42
The Canadian dollar has fallen about 0.94% mainly because of divergent expectations for U.S. and Canadian monetary policy.
Canada/U.S. 2-year and 10-year yield spreads have moved sharply in favour of the U.S. dollar. Adding to the mix is ongoing safe-haven demand for the greenback linked to Trump's war with Iran.
The Bank of Canada's Financial Stability Report, released yesterday, portrayed an economy that remains relatively resilient despite mounting risks from abroad. Canadian households, corporations and financial institutions continue to be in generally healthy condition, while inflation pressures appear well contained.
WTI oil prices are trading at the lower end of their 87.05-89.03 overnight band after Reuters reported that the U.S. and Iran had agreed to another 60-day ceasefire. The White House offered additional context around the talks.
Canada's economy is forecast to have expanded by 1.5% y/y in the first quarter while posting no growth in March. That combination is unlikely to alter expectations that the Bank of Canada will keep interest rates unchanged.
The dollar posted broad gains through May. The Japanese yen and Swiss franc were the lone holdouts, lifted by BoJ intervention and safe-haven demand respectively. Month-end rebalancing flows could trim those gains today, though any pullback may prove temporary. US PCE data released yesterday showed inflation running at its hottest in three years, reinforcing the case for the Fed to keep rates elevated.
Reports are circulating that Washington and Tehran have struck a 60-day ceasefire agreement, though Trump's Truth Social feed has yet to confirm it. If the president does not post it, did it happen?
Regional equity markets moved higher on growing optimism around a potential US/Iran truce. Australia's ASX 200 advanced 1.61%, closing May up 1.27%. Japan's Topix gained 1.41% on the day and 6.17% for the month. The Hang Seng lagged the pack, adding 0.70% on the session but ending May down 1.75%.
As of 7:15 am, the FTSE 100 has gained 0.31%, the German DAX is up 0.18%%, and the French CAC has risen 0.86%. S&P 500 futures are up 0.15%, the 10-year Treasury yield is 4.446%, and the DXY is at 99.06.
EURUSD traded in a 1.1625-1.1656 range, climbing Thursday on ceasefire optimism and holding those levels through the overnight session. The prospect of a Fed rate hike has capped the upside, but firmer risk appetite and month-end flow dynamics leave the door open for a push back toward 1.1700.
GBPUSD moved within a 1.3409-1.3451 band, surrendering most of its Asian session advance after BoE Governor Andrew Bailey reiterated his earlier stance, noting no urgency to lift rates and suggesting the Bank could tolerate inflation running above its 2% target given the fog of the Iran conflict and sluggish domestic growth.
USDJPY drifted between 159.18 and 159.38, with the topside capped by market wariness around 160.00, were BoJ intervention is expected. Japanese retail sales rose 1.2% in April, a touch below the 1.3% forecast, while the jobless rate eased to 2.5% from 2.7% in March.
AUDUSD held a tight 0.7149-0.7168 range with traders undecided about risk sentiment because there were no details about the reported Iran/US ceasefire.
