USD/CAD Open: 1.2681-84, Overnight Range: 1.2681-1.2724, Previous Close: 1.2718
WTI Oil is at $93.67 and gold is at $1,869.90. US markets are lower today.
For today, USD resistance is at 1.2706. Support is at 1.2672.
The Canadian dollar is starting today’s NY session on firm footing, thanks to a mild thaw in Russia and NATO tensions.
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USDCAD climbed to 1.2772 mid-morning yesterday after red-hot US PPI data (actual 0.9% m/m vs December 0.4% m/m), fueled speculation of more aggressive Fed rate hikes in 2022. The rally was not sustained as the focused shifted to developments between Russian and Ukraine. President Putin said he was open to further negotiations and had sent some troops back to their bases.
Equity traders liked what they heard. Wall Street rallied led by a 2.54% gain in the Nasdaq while the S&P 500 index gained 1.58%. Oil traders joined the party and WTI climbed to $93.47/barrel overnight, from a low of $90.75/b with API news of a 1.076 million barrel drop in US crude inventories, supporting the gains.
Canada January headline inflation is expected to be unchanged at 4.8% y/y, but Core-CPI is forecast higher, at 4.6% y/y compared to 4.0% in December. Higher than expected results will raise speculation of a more robust Bank of Canada interest rate response. Even so, USDCAD direction is being dictated by the outlook for the US Fed and not domestic news.
This afternoon, BoC Deputy Governor Timothy Lane speaks about “Central Bank Decision-Making in Turbulent Times.”
US Retail Sales are expected to have risen 2.0% m/m in January, a vast improvement over December’s 1.9% drop. A weaker than expected result may be bullish for US equities as it would suggest the Fed does not have to aggressively raise interest rates, although yesterday robust PPI data says different.
This afternoon’s release of the FOMC minutes may be anti-climatic as a series of policymakers have provided updated outlooks since the January 26 meeting.
EURUSD rallied from 1.1346 to 1.1395 on the improved risk tone and somewhat hawkish comments from ECB policymaker Isabel Schnabel warning about acting too late on inflation.
GBPUSD traded in a 1.3534-1.3573 range and has a modest bid following UK inflation hitting a 30 year peak. January CPI was 5.5% y/y (5.4% y/y in December) while headline and core PPI along with the Retail Price Index, also topped forecasts. The results support analyst views that the BoE will hike rates in March and again at many other meetings this year.
USDJPY traded in a narrow 115.60-78 band, underpinned by the US 10-year Treasury yield above 2.0% while concerns around Russia’s intentions for Ukraine cap the upside.
AUDUSD and NZDUSD rallied alongside the improved risk tone. AUDUSD got a bit of a boost from more “wishy-washy” comments from RBA officials. Deputy Governor Guy Debelle said a rate hike could happen or then again, maybe not.
Today’s Suggested Range USD/CAD: 1.2650 – 1.2750
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