- Risk sentiment improves with talk of peace talk progress
- New, massive COVID outbreak in China
- US dollar opens lower compared to Friday’s close
USDCAD Snapshot: open 1.2857-61, overnight range-1.2816-1.2869, close 1.2825, WTI open $96.69, Gold open $1,931.75
The Canadian dollar did not get much benefit when oil prices were soaring so it would make sense that the Canadian dollar did not suffer when oil prices sank. Except that’s not what happened over the past forty-eight hours.
The Canadian dollar correlation with West Texas Intermediate (WTI) broke down with the Russia/Ukraine war. WTI soared from $90.00/barrel just before Russian invaded Ukraine to $129.70 immediately afterwards but USDCAD only dropped to 1.2590 from 1.2620 in the same period and then mostly ignored oil price changes.
Things seem to have changed in the past 48 hours. Weaker oil prices are driving USDCAD moves. WTI dropped from $107.00/barrel on Monday to $93.57/b in NY today, a drop of over 12%, and USDCAD rallied from 1.2690 to 1.2869.
Or maybe not.
The Canadian dollar price action is likely more influenced by the outlook for Wednesday’s FOMC meeting. Traders are focusing on the US interest rate outlook and are concerned that with inflation at 7.9% y/y, and the risk of even more increases, the Fed may be more hawkish than expected. The FOMC is widely expected to hike rates 0.25% but they could still surprise markets with a 0.50% increase.
Overnight action was choppy. Asia equity markets closed mixed. Japan’s Nikkei squeaked out a tiny 0.15% gain while Australia’s ASX 200 fell 0.73%. Chinese markets were hammered due to recent coronavirus outbreaks and ongoing fall-out after the US delisted some major tech stocks.
European bourses dropped sharply as the Russia/Ukraine peace talks faltered. Germany’s Dax and the French CAC are down 2.03%. S&P 500 futures are clawing back overnight losses and are almost unchanged. US rate hike fears boosted the US 10-year Treasury yield from 2.067% yesterday to 2.158% overnight, before they eased down to 2.108% in NY. WTI fell 5.97%, and gold dropped 1.54%.
EURUSD rallied from 1.0932 to 1.1019 in part because of the steep drop in oil prices, which sparked another “short-squeeze.” The German ZEW Survey showed Economic Sentiment fell more sharply in March than ever before, and the indicator fell 3.6 points to -39.3.
GBPUSD traded in a 1.3002-1.3050 range supported by the UK employment report which sway the unemployment rate drop to 3.9% from 4.1%.
USDJPY rallied to 118.44, before reversing the entire move and dropping down to the overnight session low of 117.70 in NY trading.
Today’s US data includes Empire State Manufacturing Index and PPI.
