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USD / CAD - Canadian dollar treading water

- US interest rate outlook driving trading.

- Oil prices rise on Opec’s optimistic outlook.

- US dollar consolidating recent gains.

USDCAD: open 1.3489-93, overnight range 1.3479-1.3517, close 1.3505, WTI $73.08, Gold, $2011.66

The Canadian dollar sank yesterday and is treading water today. The Loonie came under renewed pressure yesterday when US economic data was stronger than expected. Retail sales rose 0.6% m/m in December (forecast 0.4%) and the ex-autos component climbed 0.4% (forecast 0.2%), which suggested the Fed will be less eager to reduce interest rates in the near term.

That view was reinforced by New York Fed President John Williams. He said that monetary policy was tight enough to bring inflation down to the Fed’s 2.0% target, but rates needed to remain restrictive for some time. He sounded like he fully agreed with Fed Governor Christopher Waller. On Tuesday, Mr. Waller said the Fed should proceed "methodically and carefully," when it came time to lower rates.

Those views and the retail sale report helped to boost the US 10-year Treasury yield to 4.12% from 4.06%. The yield retreated overnight, partly due to profit-taking, and is sitting at 4.086% in NY.

The Canadian dollar received a bit of support after OPEC and the International Energy Agency raised their forecasts for oil demand in 2024. The IEA expects demand will rise by 1.24 million barrels/day, which is an increase of 180,000 b/pd from the previous forecast. Realistically, OPEC produces around 30 million b/d, so a 180,000 increase is literally a drop in the bucket. Nevertheless, the news was enough to lift West Texas Intermediate to $73.29/b from $72.36/b.

EURUSD traded narrowly in a 1.0877-1.0907 range. The single currency is grinding back losses from yesterday after US data showed the American economy was resilient, which suggested the Fed may leave rates unchanged for longer than expected.

GBPUSD got a bump from yesterday’s UK inflation data and it consolidated the gains in a 1.2670-1.2705 range overnight.

USDJPY traded defensively in a 147.66-148.25 range overnight as it continues to ride the coat-tails of US 10-year Treasury moves.

AUDUSD bounced in a 0.6526-0.6565 range with the bottom occurring on the heels of a weaker-than-expected employment report.

US weekly jobless claims (forecast 207,000), Housing Starts, Building Permits, and Philadelphia Fed Manufacturing Survey are due