- Fed officials suggest no rush to cut rates.
- Eurozone PMI data ignored ahead of ECB meeting.
- US dollar grinding out small gains.
USDCAD: open 1.3580-84, overnight range 1.3571-1.3606, close 1.3575, WTI $78.75, Gold, $2123.77
The Canadian dollar is trading defensively along with most of the G-10 major currencies after comments from a Fed official suggested the Fed is in no hurry to cut interest rates. The Canadian dollar is also rangebound ahead of Wednesday's Bank of Canada monetary policy statement.
Atlanta Fed President Raphael Bostic delivered a speech yesterday that outlined a case for the FOMC to leave interest rates unchanged. He pointed out that although inflation has slowed, risks remain. Rate hikes have not had the same impact on employment in this tightening cycle as in the past, and price pressures are still widespread.
However, what caught the market's attention was a comment that the first rate cut could "unleash a burst of new demand that could reverse the progress toward rebalancing supply and demand. That would create upward pressure on prices. This threat of what I'll call pent-up exuberance is a new upside risk that I think bears scrutiny in coming months."
Stocks retreated, and the greenback inched higher. Once again, the Canadian dollar was collateral damage.
Risk sentiment remained on the negative side overnight, partly because of China releasing its economic targets for 2024. The economy is expected to grow "around 5%," although a Bloomberg Survey of economists suggests the growth is more likely 4.6%. The fiscal deficit is expected to fall to 3.0%, which suggests less money for stimulus programs, while inflation is expected "around 3.0%."
EURUSD traded quietly in a 1.0811-1.0858 range ahead of Thursday's ECB meeting. Traders ignored slightly better than expected Eurozone Services PMI (actual 50.2 vs January 48.4).
GBPUSD drifted in a 1.2671-1.2695 band despite UK Services PMI providing further evidence that the UK economy has turned a corner after entering a technical recession during the second half of 2023.
USDJPY drifted in a narrow 150.34-150.63 range. Tokyo Consumer Price Index data rose 2.6% y/y vs 1.8% in January, which had little impact.
AUDUSD traded in a 0.6478-0.6513 range with a negative bias due to the RBA's dovish outlook.
Today's US data includes ISM Services PMI (forecast 53, previous 53.4) and January Factory orders (-2.9% m/m, December 0.2%).
