- Loonie shrugs off BoC rate hike and drops 1.5% since Wednesday
- Risk-0ff sentiment sinking equity and commodity prices
- US dollar rallies on Fed rate hike outlook
USDCAD Snapshot open 1.3078-82, overnight range 1.2974-1.3130, close 1.2979, WTI oil $94.07, Gold $1716.58
The Canadian dollar and the late comedian Rodney Dangerfield have one thing in common. Neither gets any respect.
The Bank of Canada surprised markets and raised its benchmark interest rate by 1.00%. It is an aggressive move and a direct response to claims that the BoC was failing its mandate to keep inflation low, stable and predictable.
The rate hike brings the overnight range into the middle of the 2.0-2.5% neutral range. The BoC doesn’t plan on stopping either. The monetary policy statement said, “The Governing Council continues to judge that interest rates will need to rise further.”
Typically, a surprisingly robust central bank rate hike would send the domestic currency soaring. But these are not normal times, thanks to the lingering impact of the pandemic and the war in Ukraine.
USDCAD traded in a 1.2938-1.3058 range yesterday. The peak was hit when the US June inflation report came in far hotter than expected (9.1% y/y vs 8.3% in May), while the bottom was reached in the wake of the BoC press conference.
USDCAD started to climb in the afternoon when analysts began speculating that the Fed would follow the BoC’s lead and hike rates by 1.00% at the July 27 meeting. Fed policymakers supported those fears.
Atlanta Fed President Raphael Bostic said that “everything is on the table” when asked about a 100 bp hike. Cleveland Fed President Loretta Mester said inflation was too high, and the CPI report was “uniformly negative.”
Risk sentiment soured in Europe after the European Commission released its latest Economic forecasts. They slashed the 2023 GDP growth forecast to 1.4% (2.3% previously) and expect inflation to average 7.6% in 2022.
EURUSD retreated on the news and is trading at the bottom of its overnight 1.0006-1.0058 range.
GBPUSD fell from 1.1891 to 1.1815 in early NY trading due to broad US dollar demand, UK political uncertainty and concerns that the Bank of England will lag Fed rate hikes.
USDJPY reached a 23-year peak, rising from 137.34 to 139.38 due to widening Japanese and US interest rate differentials.
AUDUSD rallied to 0.6787 following a surprisingly strong employment report but retreated to 0.6712 due to renewed risk-off sentiment.
US weekly jobless claims and the PPI index are ahead.
