- BoC Deputy Governor says future rate decisions will be data-dependent
- Risk sentiment is upbeat, and stocks post gains
- US dollar opens mixed compared to the close but remains on the defensive.
USDCAD snapshot open 1.3621-25, overnight range 1.3571-1.3640, close 1.3593, WTI $72.14, Gold $1794.96
The Canadian dollar is trading choppily inside a well-defined range, with price swings determined by broad US dollar sentiment as measured by S&P 500 index moves.
The USDCAD range of 1.3550-1.3700 has been intact since the release of better-than-expected ISM Services and factory orders data Monday morning. The data has stoked hopes that Fed rate hikes are almost at the terminal level.
Bank of Canada Deputy Governor Sharon Kozicki explained the Bank’s reason behind Wednesday’s 50 bp rate hike, yesterday. She said it was necessary because “the economy remains in excess demand, inflation is still too high and broadly based, and short-term inflation expectations remain elevated.”
She said, “inflation remains too high, with many of the goods and services Canadians regularly buy showing large price increases. On the other hand, three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum.”
Policymakers are concerned with inflation expectations “because history has shown us that high inflation expectations can lead to higher and more persistent inflation.”
Ms Kozicki said future decisions “will be more data-dependent.” That’s a comment that really doesn’t say anything because if decisions were not data-dependent, the BoC wouldn’t need a staff of over 300 economists and would have no use for Statistics Canada.
In reality, the BoC monetary policy decision is merely a distraction as Canadian dollar direction is dictated by external forces.
The overnight session was choppy, but volumes were light. Asian equity indexes closed with gains following Wall Street’s positive lead. Hong Kong’s Hang Seng index had another stellar session rising 2.32%, but it is still down 17.95% year-to-date.
European bourses have inched higher led by a 0.49% rise in the German Dax. The UK FTSE 100 index is close to unchanged. S&P 500 futures have risen 0.53% suggesting a positive open on Wall Street.
WTI oil prices extended yesterday’s slide and fell from $72.52/b in Asia to $71.35/b just before NY opened. Fears of a US recession and the Russian seaborne oil price cap are weighing on prices, overshadowing hopes for renewed demand when China’s economy fully reopens.
EURUSD firmed in a 1.0548-1.0588 range, underpinned by speculation of the ECB meeting result will be hawkish.
GBPUSD traded in a 1.2229-1.2276 range supported by a minor uptrend at 1.2190 with traders expecting the BoE to lift by 0.50% next Thursday.
USDJPY plunged to 135.69 from 136.87 in Asia to 135.69 partly due to speculation the BoJ may end its yield curve control (YCC) policy in 2023.
AUDUSD traded in a 0.6755-0.6799 range supported by hopes about China’s reopening plans.
Today’s US PPI (forecast 7.4% y/y) and Michigan Consumer Sentiment (forecast 53.3) may provide some short-term direction for markets.
