The Canadian dollar rally came to a screeching halt yesterday as commodity prices and equities fell. USD/CAD touched $1.2015, then climbed back to $1.2073, as falling stock markets sourced risk sentiment.
Tuesday, the Peoples Bank of China (PBoC) repeated its edict that cryptocurrencies were not allowed as payments. Technology stocks slid and extended losses overnight. Bitcoin (BTC/USD) plunged, falling to $38,947.79 in New York from $45,708.12, Tuesday.
The minutes of the April 27 Federal Open Market Committee meeting are released this afternoon. Analysts are hoping to garner some insight into the Committee’s inflation outlook.
Former U.S. Treasury Secretary Larry Summers did his part to stoke inflation fears. He criticized the Fed’s easy monetary policy because of employment concerns as misguided. In an Atlanta Fed discussion, he said, "It is not tenable to assert today that in the contemporary American economy labour market slack is a dominant problem. Walk outside. Labour shortage is the pervasive phenomenon. Everywhere I look, there are vacancies, people eager to fill the vacancies."
He believes the Fed’s latest interest rate forecast that suggests no rate increase until the end of 2023 has created dangerous complacency in financial markets and may do real damage to the economy if inflation rises. Those remarks encouraged traders to book profits which fueled broad U.S. dollar demand.
WTI oil fell from $65.32 to $67.00 yesterday as concerns about fresh supply from Iran weigh on prices, undermining the Canadian dollar in the process.
EUR/USD dropped from $1.2244 to $1.2190 in New York today as equity market jitters and inflation concerns weigh on prices. European Central Bank policymaker Luis de Guindos repeated that the Eurozone economy continues to need accommodative monetary policy. Eurozone inflation was 1.6% y/y in April, which had no impact on FX trading.
GBP/USD ranged in a 1.4146-1.4200 band. UK inflation rose 1.5% y/y in April compared to 0.7% in March. The gain is due to base effects from energy prices and expected to be temporary.
USD/JPY climbed from 108.84 to 109.33 in NY due to broad U.S. dollar demand and higher Treasury yields. U.S. 10-year Treasury yields climbed to 1.659% from 1.642%.
AUD/USD traded lower following a weak Westpac Consumer Confidence Survey, which fell 4.2% from 6.2% in April. AUD/USD fell to $0.7734 from $0.7796.
The U.S. economic calendar is empty, leaving FX direction to be determined by Wall Street.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
