- Fed Powell suggest two more 50 bp rate hikes in June and July
- Canada’s April inflation expected to be 6.7% y/y
- USD opens mixed, EUR outperforms
USDCAD Snapshot: open 1.2823-27, overnight range 1.2797-1.2850, previous close 1.2810, WTI open $113.90, Gold open $1,819.57
The Canadian dollar is at crossroads and traders are deciding whether to drive prices higher, or retreat in the face of hawkish comments from the Fed Chair Jerome Powell.
Fed Chair Powell’s comments suggesting US rates would rise by 0.50% in June and July put a floor under prices, while gains in the S&P 500 index and rising oil prices capped the topside.
Yesterday, Mr Powell gave a broad hint that US interest rates will rise 0.50% in June and 0.50% in July. He said, “Restoring price stability is an unconditional need. It is something we have to do. There could be some pain involved.”
However, Mr Powell’s view is also the market consensus view, so his remarks had little impact on risk sentiment. Even so, Mr Powell didn’t disagree the suggesting that avoiding a recession while attempting to lower inflation would be difficult.
Bank of Canada Governor Tiff Macklem told us that fighting inflation is his top priority, so it stands to reason that today’s inflation report will not divert him from raising interest rates as aggressively as the Fed. Canada April CPI is expected at 6.7% unchanged from March but still a 30 year peak.
Surging oil prices are limiting USDCAD gains. The intraday WTI technicals are bullish above $111.00/b looking for a break above $116.50 to extend gains to 125.00. Longer term, the WTI uptrend is bullish above $100.00/b.
Oil prices continue to be supported by tight supply, sanctions on Russia, Opec’s struggles to boost production, and speculation of renewed demand from China as Shanghai reopens.
EURUSD rallied from 1.0495 to 1.0563 overnight, continuing the trend from Monday. The gains are supported by improved risk sentiment undermining the greenback alongside hawkish comments from ECB policymakers.
GBPUSD traded with a negative bias in a 1.2373-1.2500 range. Prices tumbled from the peak after UK inflation reached 9.0%, last seen in 1982.
USDJPY is trading near the bottom of its overnight 128.96-129.53 range. The rise in US Treasury yields has only had a limited impact (for now), even though BoJ officials have professed their undying love for ultra-easy monetary policy. Japan's GDP shrank 0.2% q/q, which was better than the -0.4% expected.
AUDUSD bounced in a 0.6972-0.7045 band. The Australian Wage Price Index rose 0.7% (forecast 0.8%), which alleviated concerns that the RBA would raise rates more aggressively at the June 7 meeting.
US Building Permits and Housing Starts data are ahead.
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