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USD / CAD – Canadian Dollar Climbs as risk sentiment improves

– Rate cut hopes buoyed by Powell comments.

– Nonfarm payrolls forecast 243,000.

– USD dollar drifts drops on Fed rate cut outlook.

USDCAD: open 1.3665, overnight range 1.3655-1.3678, close 1.3674, WTI $78.90, Gold, $2301.34

The Canadian dollar joined the widespread “risk-on” rally yesterday and overnight. The positive sentiment boosted global equity markets, knocked the US 10-year Treasury yield lower and drove the greenback down. It was all thanks to traders and analysts taking Fed Chair Jerome Powell at his word. Mr Powell opined, “I think it’s unlikely that the next policy rate move will be a hike.” Markets now believe the Fed will lower its benchmark rate from 5.25-5.5% to 5.00-5.25% by November.

European equity indexes are higher led by a 0.61% gain in the French CAC-40 index while S&P 500 futures have risen 0.36%. The US 10-year Treasury yield inched lower to 4.57% in early NY markets.

The April US employment report is the focus today. Traders expect that the pace of job gains will slow to 243,000 (March 303,000), which indicates cooling labor demand and reduces upward pressure on inflation. The unemployment rate is expected to be unchanged at 3.8%.

EURUSD traded firmer in a 1.0724-1.0748 range as traders revisited the ECB/Fed rate divergence story. ECB Chief Economist Philip Lane said, “A robust approach to making rate decisions under conditions of high uncertainty is to avoid pre-commitments or creating unwarranted expectations about the future rate path.” The comments were viewed as an attempt to push back against expectations for a series of rate cuts following the anticipated June cut.

GBPUSD extended yesterday’s rally and climbed from 1.2521 to 1.2567 due to broad US dollar weakness and better-than-expected

Composite and Services PMI data. The statement said, “The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4% and therefore pulling further out of last year’s shallow recession.”

USDJPY traded poorly, falling from 153.80 to 152.75 due to ongoing BoJ intervention risks and increased odds that the Fed will cut rates by November. A weaker than expected NFP report will reignite USDJPY selling.

AUDUSD traded in a 0.6582-0.6586 range, garnering a bit of support from PMI data. The S&P Global PMI statement said, “The Australian Composite PMI for April confirms earlier ‘Flash’ PMI findings of an ongoing rebound in activity levels, continued employment growth, and improved business confidence. The services sector is driving the improvement in economic activity levels. Both the business activity and new order indexes have consistently remained in expansion territory over the past three months.”

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