– Chinese data and latest RRR cut boost risk sentiment.
– Dovish ECB outlook sinks EURUSD.
– US dollar rises against EUR and GBP and drops against AUD and CAD.
USDCAD open: 1.3505-09, overnight range: 1.3494-1.3518, close 1.3510, WTI $90.44, Gold, $1918.24.
The Canadian dollar consolidated yesterday’s gains despite improved global risk sentiment and higher crude prices.
USDCAD lost 1.2% since Monday’s peak overnight due to speculation that the G-7 central banks have decided that interest rates have risen high enough to tame inflation. The view was reinforced after the European Central Bank hinted that it was finished with raising Eurozone rates. The ECB statement said, ‘Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’
The Canadian dollar is also benefiting from the nearly six percent rise in West Texas Intermediate (WTI) oil prices since last Friday. WTI rose from $90.33 to $91.15/b overnight but has retraced most of the move in early NY trading.
It is ‘quadruple witching’ day for US equity option traders, and that suggests equity volatility around the 10:00 am expiry window. In addition, there is plenty of second-tier US data on tap, including US Industrial Production, Capacity Utilization, NY Empire State Manufacturing PMI, and Michigan Consumer Sentiment. However, traders are likely to ignore the results ahead of next week’s FOMC meeting.
EURUSD is consolidating yesterday’s losses in a 1.0633-1.0669 range. The ECB followed up with a 0.25% rate hike (to 4.0%) with a broad hint that it was the last rate increase for this cycle. Better-than-expected US PPI and Retail Sales data exacerbated the EURUSD selling as it reaffirmed the resilience of the American economy compared to the eurozone. The EURUSD technicals are bearish below 1.0750 and looking for a test of support in the 1.0500 area.
GBPUSD traded negatively in a 1.2399-1.2447 range. Analysts are expecting that the Bank of England will follow the ECB’s lead with a dovish 0.25 bp rate hike next week.
USDJPY climbed steadily overnight, rising to 147.90 from 147.34, fueled by the US 10-year yield ticking up to 4.324% from its closing level of 4.29%. USDJPY is also supported by Japanese investors’ appetite for foreign bonds.
AUDUSD traded in a 0.6430-0.6473 range but retreated to 0.6451 in early NY. The currency was supported by better-than-expected Chinese data, the PBoC RRR cut, and higher commodity prices. Traders are looking for a break above 0.6500 to extend gains to 0.6560.