- Canadian dollar bounces off major support
- US markets closed for holiday
- US dollar opens mixed-NZD outperforms
USDCAD Snapshot: open 1.2985-89, overnight range 1.2987-1.3035, close 1.3028, WTI open $108.30, Gold open $1,840.81
The Canadian dollar sank deeply Friday in an impressive effort to break below support. It has since managed to recover but is treading water above near term resistance.
USDCAD climbed from 1.2941 in Asia Friday to 1.3078 by mid-morning Friday coinciding with a pre-long weekend sell off on Wall Street. The S&P 500 index fell to 3,636.87 before prices rebounded, which allowed USDCAD to retreat from the brink.
The equity woes and US dollar rally are due to the heated debate as to whether soaring global inflation will lead to a recession. US Treasury Yellen doesn’t think a recession is inevitable in America. However, the Wall Street Journal’s Jon Sindreu pointed out that since the 1950’s, 9 of the 12 tightening cycles ended in a recession.
Friday’s Canadian dollar sell-off was exacerbated by the 8.25% plunge in West Texas Intermediate (WTI) oil prices. WTI slumped due to pre-long weekend profit taking, US dollar gains, and recession fears.
Canada Finance Minister Chyrstia Freeland said her government will spend 48.9 billion to help Canadians cope with inflation. That solution is part of the problem. Economists point out that the government is pumping fiscal stimulus into an economy that is overheating and making inflation worse.
EURUSD gapped lower at the Asia open in a reaction to the French election but rebounded quickly, rising from 1.0476 to 1.0545. Traders continue to assess the ECB’s anti-fragmentation” plans which will support plunging bond prices in some member states. German PPI data (actual 1.5% vs previous 2.8% m/m and EU construction output data were not factors.
GBPUSD traded in a 1.2201-1.2261 range. Prices are underpinned by hopes of a more aggressive Bank of England reaction to rising inflation pressures, although a dip in Core-inflation readings means the BoE can react less forcefully. The UK is experiencing a massive rail strike which may act as a drag on gains.
USDJPY continued to consolidate post-BoJ gains in a 134.54-1.35.43 range overnight. Reports that the Prime Minister and BoJ Governor discussed the weakening yen were dismissed, largely because policymakers are responsible for the slide. The BoJ reportedly spent $81 billion buying JGB’s last week to keep yields below 0.25%.
AUDUSD is at the top of its 0.6924-0.6995 range supported by profit taking as the US dollar gave back some of Friday’s gains. NZDUSD followed suit in a 0.6302- 0.6351 range
