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USD / CAD - Canadian dollar digesting Bank of Canada decision

- Bank of Canada hikes rates and calls a time out.

- Lots of US data released today.

- US dollar on the defensive except against CAD.

USDCAD snapshot: open 1.3383-87, overnight range 1.3372-1.3406, close 1.3372, WTI $80.71, Gold $1936.62

The Canadian dollar bopped and weaved after the Bank of Canada monetary policy statement was released yesterday.

The BoC raised its benchmark rate by 25 bps to 4.5% in a widely-anticipated action. They also announced a pause to further rate hikes.

Governor Tiff Macklem said "With today's modest increase, we expect to pause rate hikes while we assess the impacts of the substantial monetary policy tightening already undertaken. "To be clear, this is a conditional pause — it is conditional on economic developments evolving broadly in line with our … outlook.

Even so, he left the door wide open to another round of rate hikes saying, “If we need to do more to get inflation to the two-per-cent target, we will."

USDCAD dropped to 1.3340 then jumped to 1.3440 in the aftermath of the BoC announcement, then traded with a modest bid tone, in a narrower range overnight.

The BoC’s dovish rate hike attracted more attention then usual in overseas markets. Traders are hoping that other central banks follow suit
That’s not going to happen any time soon. The European Central Bank has telegraphed its intention to raise its overnight rate by 50 bps next, followed by an identical move in March. The FOMC seems committed to raising rates to at least 5.0%.

The Bank of England is a wild card. They are expected to raise rates 50 bps February 2 but some analysts fear the statement may be dovish to UK economic growth concerns.

EURUSD traded with a bit of a bid in a 1.0894-1.0929 range in anticipation of a hawkish ECB monetary policy meeting on February 2. Analysts are expecting the ECB to raise rates by 50 bps next week and again in March.

GBPUSD consolidated yesterdays gains in a 1.2376-1.2429 range. The BoC monetary policy meeting is February 2 and a 50 bp hike is expected. Some analysts are warning of GBPUSD weakness if the BoE expresses caution about the need for further rate hikes.

USDJPY traded in a 129.03-129.99 range with the low seen in Asia. The BoJ Summary of Opinions said it was appropriate to keep existing monetary polices and the YCC cap.

AUDUSD drifted in a 0.7094-0.7127 due to a mildly weaker US dollar. Volumes were light due to the Australian Day holiday.

Today’s US data dump includes Chicago Fed National Activity Index, Weekly Jobless Claims, Durable Goods Orders, Q4 GDP, Wholesale Inventories, New Home Sales, and Personal Consumption Expenditures Prices.