- Equity markets surge and ignore rising Treasury yields.
- Fed policymakers reiterate unchanged rates for longer views.
- US dollar retreat takes a breather.
USDCAD: open 1.3486-90, overnight range 1.3472-1.3503, close 1.3483, WTI $77.54, Gold, $2022.81
The Canadian dollar is running around in circles, staging rallies and retreats with equal enthusiasm but ultimately going nowhere. This has been the case for most of February, as USDCAD has been locked in a 1.3410-1.3580 range, and neither domestic data nor the Bank of Canada have had a significant impact to change the situation.
Thursday's release of the December retail sales report is one example of better-than-expected economic data failing to generate much of a response. Retail sales rose 0.9% m/m compared to -0.2% in November, while core retail sales (ex-autos) rose 0.6% m/m (-0.5% in November). The results demonstrate that consumers were still spending despite higher interest rates. The Canadian dollar weakened on the news but has since recovered all its losses and remains inside its well-defined range.
There were plenty of Fed officials offering opinions on the outlook for US rates yesterday, and none of them suggested a rate cut was imminent. Vice Chair Philip Jefferson admitted rate cuts were on the agenda, but he was cautious because of robust employment and ongoing geopolitical tensions.
Fed Governor Christopher Waller said that the recent employment and inflation reports "reinforced my view that we need to verify that the progress on inflation we saw in the last half of 2023 will continue, and this means there is no rush to begin cutting interest rates to normalize monetary policy."
His colleague, Governor Lisa Cook, echoed his comments when she said, "I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate. I would see an eventual rate cut as adjusting policy to reflect a shifting balance of risks."
EURUSD drifted in a tight 1.0814-1.0833 range, with German GDP and Eurozone Ifo data having minimal impact on trading.
GBPUSD is steady in a 1.2649-1.2679 range. The currency is underpinned by yesterday's mildly better-than-expected PMI data and bullish short-term technicals.
USDJPY drifted in a 150.38-150.79 range. Japanese markets were closed for the Emperor's birthday holiday. The rise in the 10-year US Treasury yield to 4.35% yesterday supported the gains.
AUDUSD drifted in a 0.6550-0.6580 band, with price action determined by the prevailing risk sentiment.
There are no US or Canadian economic reports today.
