- Traders dismiss Powell’s interest rate outlook.
- BoC Governor Macklem reconfirms rate hike pause.
- US dollar opens lower against G-10 major currencies
USDCAD snapshot open 1.3374-78, overnight range 1.3362-1.3406, close 1.3398, WTI $77.95, Gold $1880.74
The Canadian dollar pulled back from the brink yesterday, and rallied aggressively in the wake of Fed Chair Jerome Powell’s comments to the Washington Economics Club.
Mr Powell’s remarks were hawkish. He pushed back against the notion that inflation had peaked and noted that inflation going away “quickly and painlessly is not the base case. The base case for me is that we’ll have to do more rate increases, and then we’ll have to look around and see whether we’ve done enough.”
If that’s not hawkish enough for you, he also said that if they continued to get strong data like Friday’s nonfarm payrolls report or a higher inflation report, the Fed would have to raise rates “more than what is price in.”
Traders ignored those statements and focused on a comment about disinflation. Powel said, “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy,” while ignoring the caveat that “but it has a long way to go. These are the very early stages.”
Traders sold the US dollar and bought commodities and stocks.
The S&P 500 index rally from a low of 4088.39 to 4176.54 yesterday, knocked USDCAD from 1.3472 to 1.3378. Prices fell further in Asia before bouncing to 1.3400 in early NY trading.
President Biden’s State of the Union address did not have any impact on FX trading but was a factor for a subdued trading session in Asia.
Bank of Canada Governor Tiff Macklem reiterated comments for the January 25 meeting that he did not expect to hike interest rates any further. They were not anything new, so traders focused on events south of the border.
WTI oil prices rallied on the back of broad US dollar weakness and may have contributed to Canadian dollar gains. Oil traders ignored a 2.2 million barrel increase in US crude inventories and positioned for higher prices from increased Chinese demand.
EURUSD traded in a 1.0724-1.0760 band with the market view of US interest rates overshadowing hawkish comments from ECB officials.
GBPUSD traded in a 1.2040-1.2108 overnight range in NY due to broad US dollar weakness and EURGBP selling.
USDJPY dropped to 130.61 from 131.37 range after the US 10-year yield rose to 3.653% from 3.60% yesterday.
AUDUSD is firmer in a 0.6951-0.6995 banned, supported by widespread US dollar weakness and the lingering impact from the hawkish RBA outlook.
The US and Canadian economic calendars are empty.
