USD/CAD Open: 1.3204-08, Overnight Range: 1.3181-1.3227, Previous Close: 1.3198
WTI Oil open at $71.56 and gold open at $1,950.35. US markets are lower today.
For today, USD resistance is at 1.3219. Support is at 1.3190.
The Canadian dollar continues to inch higher. The gains are not just a Canadian dollar story but rather a tale of the US Fed and the outlook for rates. The Fed’s decision to pause its tightening cycle last week, although anticipated, ignited a firestorm of debate around the Fed funds terminal rate.
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The FOMC Summary of Economic Projections (SEP) was surprisingly hawkish as policymakers raised the median forecast for interest rates at the end of 2023 by 50 bps. The higher forecast should have sparked a surge in US dollar demand, but it didn’t. Instead, traders and analysts concluded that the Fed was at or very near its terminal rate, while other central banks were still in tightening mode.
The Bank of Canada is one of those central banks. It surprised the markets at the beginning of the month when it raised rates by 25 bps after being on hold since January.
The European Central Bank (ECB) also raised its benchmark rate by 25 bps last Thursday, and President Christine Lagarde essentially pre-announced a similar hike at the July meeting.
Wall Street enthusiastically embraced the prospect that the Fed was nearly done raising rates, driving the S&P 500 index from 4304 on June 12 to 4448 on Friday.
Risk sentiment also received a boost from reports that China would cut its 1-year and 5-year Loan Prime Rates this week and announce a massive fiscal stimulus program. Additionally, Chinese President Xi Jinping’s meeting with US Secretary of State Anthony Blinken today raised hopes of a reduction in US/China tensions.
EURUSD traded in a 1.0918-1.0945 range, supported by divergent Fed and ECB monetary policies and bullish EURUSD technicals, with an aim to test 1.1050.
GBPUSD stagnated in a 1.2805-1.2836 band. Traders are awaiting Thursday’s Bank of England monetary policy meeting, which could result in a 50 bp rate hike.
USDJPY climbed to 142.00 from 141.45 due to the prospect of higher US interest rates in the face of the Bank of Japan’s ultra-easy monetary policy.
AUDUSD traded in a 0.6835-0.6882 band, with prices underpinned by anticipation of a new Chinese economic stimulus plan. The Reserve Bank of Australia’s monetary policy meeting minutes are due Tuesday.
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