- BoC Deputy governor opens door to 0.75% rate hike
- US employment report ahead
- US dollar consolidating recent losses, opens weak.
USDCAD Snapshot: open 1.2562-66, overnight range 1.2558-1.2577, close 1.2570, WTI open $116.15, Gold open $1,864.58
The Canadian dollar soared following a surprisingly hawkish speech by Bank of Canada ( BoC) Deputy Governor Paul Beaudry, yesterday. It hasn’t looked back.
USDCAD traded at 1.2684 in Asia on Thursday, then dropped to 1.2564 by lunchtime in Toronto. A rebound on Wall Street got the ball rolling. Mr Beaudry’s comments suggesting a 0.75% rate hike was very possible at the July 14 BoC meeting, kicked the ball through the uprights.
Mr Beaudry said policymakers were wrong about inflation being transitory and now fear rising prices becoming entrenched. Those fears mean the BoC would need to raise above the neutral rate (2.0-3.0%).
USDCAD, which was already sliding due to S&P 500 gains, accelerated lower and smashed through major support. Analysts expect further losses to 1.2440.
It is nonfarm payrolls day in America. The US is expected to have gained 325,000 jobs in May with the unemployment rate dipping to 3.5% from 3.6%. Average hourly earnings are expected at 5.2% (April 5.5%).
Another robust NFP report will put additional pressure on inflation which points to higher interest rates.
Fed Vice Chair Lael Brainard said as much yesterday when she alluded to three more increases by September.
European FX trading was slower than usual because the UK was closed, still celebrating the Queen’s Platinum Jubilee.
EURUSD is consolidating yesterday’s gains with prices at the bottom of its 1.0735-1.0764 range. The single currency is underpinned by broad US dollar weakness, and speculation of 0.50% ECB rate hikes by September. However, weaker than expected Eurozone April Retail Sales (-1.3% m/m, and Services PMI data capped gains.)
GBPUSD rallied yesterday and traded in a 1.25+1-1.2589 range overnight. The gains were on the back of improved risk sentiment following yesterday’s Wall Street rally.
USDJPY traded sideways in a 129.70-130.19 range. Prices are underpinned by firmer US Treasury yields but traders are cautious due to the risk of BoJ intervention.
AUDUSD and NZDUSD rode the risk rally wave although both currency pairs are at the bottom of their overnight range. AUDUSD traded in a 0.7244-0.7288 band while NZDUSD traded in a 0.6537-0.6574 range.
US ISM Services PMI is expected to dip to 56.4 from 57.1.
