- ECB will profess data dependency.
- US GDP will demonstrate American economic resiliency.
- US dollar back with a bid.
USDCAD: open 1.3503-07, overnight range 1.3506-1.3535, close 1.3524, WTI $76.28, Gold, $2019.53
The Canadian dollar is struggling, and it didn’t get any help from yesterday’s Bank of Canada monetary policy statement. The BoC left rates unchanged which was universally expected but threw a wet blanket over hopes for imminent rate cuts. Apparently, that topic isn’t even being discussed. Governor Tiff Macklem said, “Governing Council’s discussion about future policy is shifting from whether monetary policy is restrictive enough, to how long to maintain the current restrictive stance.”
He made a half-hearted effort to inject two-way risk into the rate debate when he said “That doesn’t mean we have ruled out further policy rate increases if inflation perks back up. No one took him seriously.
The BoC does not have much expectations for economic growth in 2024. They downgraded 2024 GDP growth to 0.8% from 0.9% in October and are predicting that inflation will remain at an elevated 2.8%. Canadian bank economists did not change their predictions for the first rate cut and still expect a 25 bp reduction in June.
EUR/USD drifted in a 1.0870-1.0900 range, with traders awaiting today's ECB meeting. The central bank will reiterate its claim that it is far too soon to think about rate cuts, even if they are not planning any more rate hikes. The European economy looks like a dog's breakfast, and ongoing farmer protests in France, Germany, Belgium, Poland, and the Netherlands, upset about aggressive and poorly-planned green policies, could change the ECB view. That's because leaving rates at elevated levels will exacerbate the weak economy. The German economy continues to deteriorate. The Ifo Business Climate survey fell to 85.2 points from 86.3 in December.
GBP/USD traded in a 1.2703-1.2743 range, with price action dictated by the prevailing US dollar sentiment. The Bank of England meeting is next week, with policymakers expected to justify leaving rates in restrictive territory for longer than previously expected.
USD/JPY traded in a 147.41-147.90 range. Prices are underpinned by firmer US Treasury yields, but gains are limited due to concerns that the BoJ may raise rates at its next meeting.
AUD/USD traded positively in a 0.6566-0.6593 range, supported by a somewhat improved outlook for China.
Today’s US data releases include: US weekly jobless claims, Durable Goods Orders, Chicago Fed National Activity, and Q4 GDP.
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