- Hawkish FOMC pivot brings relief rally
- Bank of England surprises (some) with a 0.25% rate hike
- CAD rallies 0.77% but still underperforms against antipodean currencies
USDCAD Snapshot: Open 1.2775-79, Overnight Range 1.2777-1.2856, Previous close 1.2833, WTI open $71.70, Gold open $1786.56
The Canadian dollar is back from the brink. USDCAD appeared to be on the verge of blowing through resistance in the 1.2970-1.3000 area immediately following the FOMC meeting until traders determined the first Fed rate hike would not occur in the near term. USDCAD slid and continued to slide in early NY trading today, reaching 1.2767.
The FOMC turned hawkish. The Summary of Projections shows three rate hikes in 2022 compared to September, when only half of policymakers predicted one increase. The Fed finally acknowledged that high inflation was more persistent than previously expected, and the economy was booming. The FOMC announced an accelerated pace of tapering, which was well-telegraphed and not a surprise.
The FOMC statement said that “With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”
The Bank of Canada is also awaiting the labour market to achieve maximum employment, but both Fed President Powell and BoC Governor Macklem admitted that maximum employment is not a quantifiable number.
Overnight, Asian equity indexes were mixed. The Nikkei 225 closed with a 2.13% gain, supported by the passing of another stimulus bill. Australia’s ASX 200 index fell 0.43% due to hawkish comments from RBA Governor Lowe. European bourses are higher, and US equity futures point to a positive open on Wall Street. Oil and gold prices are firmer, while US 10-year Treasury yields are steady at 1.437%.
The Bank of England surprised many participants when it raised interest rates 0.25%, in the face of new Omicron-variant concerns. It was the first rate increase in three years and analysts believe that today’s move is an acknowledgment to the seriousness of the inflation risk. The BoE also trimmed its GDP forecast for Q1 2022.GBPUSD soared, rising from an overnight low of 1.3243 to 1.3368 in NY.
The ECB was not nearly as aggressive. They left the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. EURUSD rallied in a 1.1282-1.1343 range. Traders are awaiting the press conference.
There are a lot of US data releases today, including weekly jobless claims and the Philadelphia Fed Manufacturing Survey.
