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USD / CAD – Canadian Dollar gets hammered


– Hot US inflation report sends US Treasury yields skyrocketing.

– BoC Governor talks about cutting rates in June.

– US dollar opens with massive gains compared to yesterday, but little changed overnight.

USDCAD: open 1.3689, overnight range 1.3673-1.3695, close 1.3683, WTI $86.10, Gold, $2331.02

The Canadian dollar got hammered yesterday, and it is still licking its wounds in early NY trading today. USDCAD exploded higher after US inflation rose more than expected yesterday. Headline CPI jumped to 3.5% y/y from 3.2% y/y in February, while the more important Core-CPI was unchanged at 3.8% y/y; it was still higher than expected.

USDCAD spiked to 1.3705 from 1.3558 yesterday and then spent the overnight session adrift in a 1.3673-1.3695 band.

The Bank of Canada also played a big role in the demise of the Canadian dollar. For some reason, and despite knowing that US inflation was ticking higher, Governor Tiff Macklem decided that suggesting Canadian interest rates could go lower in June was a smart thing to do. He glibly responded to a question about a June rate cut by saying it was “within the realm of possibilities,” and then telling a Globe and Mail reporter, “I’m not going to put it on a calendar, we’ve been pretty clear; we’re encouraged by the progress we’ve seen.”

Mr. Macklem should have learned his lesson about the folly of making interest rate pronouncements. He told Canadians to strap on debt in June 2020, saying, “Our message to Canadians is that interest rates are very low and they’re going to be there for a long time.” Less than two years later, he made the first of 475 bps in rate hikes.

His comments are even more irresponsible when you consider that he just recently finished explaining that the BoC economic forecasting models did not work, which is why the BoC missed the post-Covid surge in inflation. In addition, it is very likely that Canada will have a similar inflation experience to the Americans.

EURUSD traded in a 1.0726-1.0750 range overnight ahead of today’s ECB monetary policy meeting. The ECB is expected to set the stage for a rate cut in June.

GBPUSD is on the defensive in a 1.2531-1.2570 range. Bank of England policymaker, Megan Greene, suggested that UK rate cuts are a long way off.

USDJPY rallied from 152.75 to 153.29 thanks to the US 10-year Treasury yields jumping to 4.566% overnight.

AUDUSD is the worst-performing G-10 currency and dropped to 0.6502 from 0.6624 at yesterday’s NY open.

Today’s US data includes PPI and weekly jobless claims.

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