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USD / CAD - Canadian Dollar Plummets

- US recession fears boost US dollar and sink Loonie.

- EURUSD anticipating a hawkish ECB outcome.

- US dollar consolidates yesterday’s gains overnight

USDCAD snapshot: open 1.3495-99, overnight range 1.3489-1.3519, close 1.3493, WTI $78.74, Gold $1909.60

The Canadian dollar fell off a proverbial cliff yesterday and added to its losses overnight after US recession fears re-emerged.

Wednesday, weaker-than-expected US retail sales and producer price data renewed fears that an “economic soft-landing” was becoming more unlikely which drove Wall Street stocks lower. Those losses were exacerbated after hawkish comments from Fed officials.

Dallas Fed President Lorie Logan and Philadelphia Fed

President Patrick Harker argued the merits of 25 bp rate hikes, suggesting the need for higher rates for a longer period than initially expected.

The rising dollar also took the wind out of the sails on rising oil prices. West Texas Inter mediate is trading at $78.85 in NY, after falling from $82.30/barrel yesterday to a $78.16/b low overnight. Prices are on the defensive ahead of next week’s Chinese New Year holidays and concerns that a recession will lower oil demand.

EURUSD traded sideways in Asia then rallied from 1.0783 to 1.0838 in Europe for easing to 1.0820 in NY trading. Prices are underpinned by hawkish comments from ECB board member and Dutch Central Bank President Klaas Knot. He said the ECB will not stop hiking rates after a single 50 bp bump, warning that traders thinking otherwise have got it wrong. The intraday EURUSD technicals are bullish above 1.0760.

GBPUSD drifted in a narrow 1.2315-1.2348 band. Prices are consolidating recent gains after higher than expected core-inflation and advanced hourly earnings data suggests the Bank of England will hike rates 50 bps at the February 2 meeting. GBPUSD is bullish above 1.2200.

USDJPY sank in Asia and rallied in Europe inside a 127.77-128.86 range. Sentiment is bearish as traders believe a hawkish tilt by the Bank of Japan is inevitable. Even so, EURJPY and GBPJPY demand boosted USDJPY.

AUDUSD closed defensively on Wednesday and is trading at the bottom of its overnight 0.6877-0.6947 range. Australian unemployment surprised with a 14,600-job loss, exacerbating the fall but the pain was soothed somewhat as the December data followed a very robust November report.

NZDUSD followed AUDUSD lower in a 0.6376-0.6447 range. News that Prime Minister Jacinda Arden resigned, had no impact on FX trading.

Today’s US data includes weekly jobless claims, the Philadelphia Fed Manufacturing Survey, Building permits, and housing starts.