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USD / CAD - Canadian dollar rebounds

- Nonfarm payrolls consensus is 180,000.

- Risk sentiment turns positive as equities rise.

- US dollar drops with falling yields-AUD outperforms.

USDCAD: open 1.3371-75, overnight range 1.3365-1.3389, close 1.3388, WTI $74.16, Gold, $2054.70

The Canadian dollar switched from defense to offense due greatly to improved global risk sentiment. You can thank bond traders for that.

The 10-year US Treasury yield plunged from 4.115% on Monday to 3.84% yesterday. Yields inched up to 3.877% today, but that wasn’t enough to dampen the euphoria. Bond traders have embraced the idea that US rates will fall sharply in 2024 and do not seem to be too concerned about the timing. Traders have pushed out the timing of the first Fed rate cut to May 1, rather than March 20, which was expected until this week's FOMC meeting.

The January US nonfarm payrolls report is expected to show job gains of 180,000, compared to 216,000. An upside surprise won’t derail positive risk sentiment as the Fed has indicated that the labor market is more balanced. Yesterday’s weekly jobless claims data supports that view, as claims rose by 9,000 from the week before.

USDCAD dropped from 1.3446 yesterday to 1.3365 overnight, despite West Texas Intermediate oil prices falling 3.4% from Thursday’s peak. Oil traders cut short-term bullish bets following reports of a potential Gaza peace plan.

EURUSD rejected losses below 1.0800 yesterday and quickly rallied from 1.0779 to 1.0877, then consolidated in a 1.0867-1.0898 range overnight due to broad US dollar weakness. Traders appear eager to buy EUR/USD and are hoping a benign Nonfarm Payrolls number will do the trick. The EUR/USD technicals suggest that a decisive break above 1.0880 will extend gains to 1.1000.

GBPUSD rallied from yesterday’s low of 1.2625 to close at 1.2743, then continued to rally in a 1.2742-1.2772 range overnight. The currency pair is getting a boost from Thursday’s Bank of England monetary policy meeting. The BoE left rates unchanged, but two policymakers voted to hike rates by 25 bps, which devalued the otherwise dovish outcome. Officials continued to stress the need to be cautious and insist they need more time to evaluate incoming data. The odds for a May rate cut dropped from 60% to 50%.

USDJPY continued to consolidate its post-FOMC losses in a 146.24-146.80 range and is trading in early NY at 146.70, coinciding with the US 10-year Treasury yield ticking up to 3.882% from 3.84%.

AUDUSD rose from 0.6570 to 0.6609 and is the best-performing G-10 currency against the US dollar since yesterday’s NY open. The gains are due to broad US dollar weakness and improved risk sentiment from rising stock prices. Australian Q4 PPI rose 4.1% q/q from 3.8%

ISM Manufacturing PMI is expected at 49.1 (previous47.1)