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USD / CAD - Canadian dollar gives back gains.

- Loonie ignores oil price rise.

- BoJ leaves rates unchanged as expected.

- US dollar trades quietly and opens with a mixed bias.

USDCAD: open 1.3474-78, overnight range 1.3453-1.3486, close 1.3479, WTI $74.24, Gold, $2024.99.

The Canadian dollar is bouncing between its downtrend boundaries and lacks conviction for moves in either direction. Traders are hoping for some guidance from the Bank of Canada monetary policy meeting and quarterly monetary policy report, due tomorrow.

Pivoting has become the “word du jour” for central bank strategies after the Fed essentially adopted a dovish bias in December when the Summary of Economic Projections (SEP) predicted 75 bps of rate cuts in 2024.

Unfortunately for Canadian borrowers, pivot will not be in the BoC vocabulary tomorrow. December’s higher than expected inflation report made sure of that. Governor Tiff Macklem is likely to adopt a hawkish tone and warn that domestic rates will not be reduced any time soon and could even go higher. The Canadian dollar would rally with such a statement, but the gains will be fleeting. Traders have priced in 75 bps of rate cuts in 2024. They believe that Canada is in, or is very close to a recession, with employment and economic growth falling. That is not an environment conducive to raising rates.

Oil prices attempted to rally yesterday and overnight. West Texas Intermediate (WTI) reached $75.15 in Europe before retreating to $73.81 just before New York opened. The gains were attributed to concerns about more supply disruption after the US and UK announced new military strikes on targets in Yemen.

Risk sentiment improved briefly in Asia after Chinese authorities announced plans to support the equity market. State-owned entities with offshore accounts will support the major exchanges by investing $227 million into Hong Kong linked stocks. The Shanghai Shenzhen CSI 300 index has lost 22.71% in the past year.

EURUSD is near the bottom of its 1.0867-1.0907 overnight range. Prices popped higher in Asia due to improved risk sentiment from China’s equity market stimulus but fell when US Treasury yields climbed from 4.10% to 4.13%.

GBPUSD rose then fell in a 1.2703-1.2748 range, with prices rising on improved risk sentiment due to talk about UK tax cuts in the next budget and on the heels of China’s support for domestic equity markets. However, the gains were erased when US Treasury yields moved higher.

USDJPY churned in a 146.99-148.55 range after the BoJ left monetary policy unchanged as expected.

AUDUSD traded in a 0.6565-0.6613 range with price action tracking broad risk sentiment. The NAB Business conditions survey fell to December 7 from 9 in November.

The US data calendar is empty