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USD / CAD - Canadian dollar soars

- FOMC pivots-rate hike cycle is over.

- Bank of England leaves rates unchanged-ECB next.

- US dollar drops across the board-JPY outperforms.

USDCAD: open 1.3451-55, overnight range 1.3443-1.3521, close 1.3519, WTI $70.87, Gold, $2034.29.

The Canadian dollar is soaring. The Federal Open Market Committee is projecting 75 bps of rate cuts in 2024, and that news took the floor out from under the US dollar. USDCAD plunged from 1.3609 yesterday to 1.3443 in NY trading today.

The Canadian dollar is getting additional support because the spread between Canadian and US 10-year bond yields narrowed by over 12 bps and from the rebound in commodity prices. Gold (XAUUSD) jumped by nearly $40.00.

The Fed rate cut outlook lifted oil prices off their lows, albeit modestly. West Texas Intermediate (WTI) rose from $68.10/b yesterday to $70.73/b in NY today.

The FOMC statement was slightly hawkish as it warned that US rates could go higher if inflation levels warranted, but that was expected.

The market was taken aback by the extent of the rate cut projections, especially because the previous Summary of Economic Projections (SEP) in September predicted one more rate hike in 2024. That didn’t happen, and the FOMC expects the overnight rate to be 4.75% by the end of 2024.

The US dollar dropped dramatically in the wake of the news. The US dollar index (DXY) plummeted to 101.89 today from 103.60 yesterday. That drop fueled the USDCAD sell-off which flipped the short and medium-term technical picture to bearish. USDCAD resistance is at 1.3550, while initial support is at 1.3410.

EURUSD soared from 1.0784 pre-FOMC and closed at 1.0875. The rally continued overnight with prices rising from 1.0872 to 1.0930 in early NY. No one expects the ECB to hike rates at this meeting, but traders are eagerly anticipating President Christine Lagarde’s reaction to the market pricing the first rate cut in March. The SNB left rates unchanged at 1.75% and downgraded its FX intervention outlook.

GBPUSD rallied from 1.2502 on Wednesday to 1.2724 in NY after the BoE left rates unchanged at 5.25%. Rate cut hopes were dampened due to the statement saying, “Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit.”

USDJPY dropped from yesterday’s peak of 146.19 to 140.97 overnight due to broad US dollar weakness and the 10-year Treasury yield dropping to 3.95%.

AUDUSD climbed in a 0.6654-0.6728 range. Prices were boosted after Australian employment rose by 61,500 jobs (forecast 11,000).

Today's US data includes weekly jobless claims and retail sales.