- Soaring US CPI fuels aggressive rate hike outlook
- GBPUSD recovering losses following robust data
- US dollar opens firmed but retreats in early NY trading
USDCAD Snapshot: Open 1.2726-30, Overnight Range-1.2698-1.2752, previous close 1.2721, WTI open $90.58, Gold open $1826.17
The Canadian dollar bounced off support and resistance levels in the past twenty-four hours. It is likely to trade similarly today.
The Canadian dollar appeared to shrug off the news that US January inflation was a hotter-than-expected 7.5% y/y. That’s because Wall Street traders didn’t seem concerned beyond the immediate negative knee-jerk reaction. The S&P 500 recovered all its post-data losses by lunch, and that is when the Canadian dollar peaked.
Sentiment turned negative in the afternoon. St Louis Fed President James Bullard, who is also a voting member of the FOMC, reacted to the CPI data and said he expects Fed Funds to rise by 100 basis points by July 1. There are only three FOMC meetings until that date, implying he expects a 0.50% rate hike at one of those meetings.
Another analyst suggested that the Fed may raise rates as soon as Monday at the closed-door board meeting. However, that story was disputed in a Bloomberg article. The article said the Fed would be reluctant to raise rates ahead of schedule as that would signal they were panicking.
The rate hike speculation underpinned US Treasury yields. The 10-year yield peaked at 2.057% yesterday but dipped to 2.006% in NY today.
The ongoing border blockades may also undermine the Canadian dollar. Automakers are closing plants due to a shortage of parts, and shipping delays will ripple through the economy. The impact of prolonged border closures will undermine GDP, cause inflation, and raise unemployment.
The US dollar opened today with robust gains against the G-10 major currencies, but those gains were reduced after US equity futures rebounded from overnight lows, although they still suggest a negative open on Wall Street.
EURUSD is in the middle of its overnight 1.1371-1.1429 range. The single currency remains under pressure due to the dovish outlook by ECB President Christine Lagarde who continues to insist that inflation will fall in 2022 and that there is no need to raise interest rates.
GBPUSD rallied from 1.3516 to 1.3587 in NY after UK data was better than expected. UK GDP expanded by 7.5%y/y in 2021, while Manufacturing and Industrial Production reports were solid.
AUDUSD suffered after RBA Governor Philip low said interest rates will remain unchanged as they can patiently take their time to assess incoming data.
The only data of note is the Michigan Consumer Sentiment Index.
