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USD / CAD - Canadian dollar firming

- Cautious start to busy week.

- FOMC meeting headlines risk events

- US dollar opens narrowly mixed after subdued overnight session.

USDCAD snapshot open 1.3316-20, overnight range 1.3302-1.3352, close 1.3122, WTI $79.76, Gold $1930.51

The Canadian dollar traded erratically in a narrow range while maintaining a somewhat bullish bias. The Canadian dollar is benefitting from hopes the Fed scales back its tightening program, from hopes for a US soft landing and steady to higher oil prices.

The Canadian dollar isn’t any worse for wear after the Bank of Canada announced it planned to hold interest rates at its “current level while they asses the impact of the cumulative 425-basis point increase in the policy rate.”

Some analysts and traders are anticipating that the BoC will cut rates before the end of the year. Meanwhile, Fed officials have indicated that US rates will rise further and remain in restrictive territory until inflation hits its 2.0% target.

The widening CAD/US differential should be sinking the Canadian dollar, but it is not. Instead, traders are focused on modestly improved risk sentiment as measured by the 6.02% gain in the S&P 500 index this month.

The Canadian dollar is also benefitting from 10% rise in West Texas Intermediate oil prices from January 5 until today. China’s sudden cancellation of its zero-covid policy suggests increased crude demand as its economy fully reopens. That demand will occur against a backdrop of more aggressive sanctions on Russian crude exports and Opec production manipulation.

FX traders are cautious today ahead of Wednesday’s FOMC meeting and Thursday’s Bank of England (BoE) and European Central Bank (ECB) monetary policy meetings.

The FOMC is expected to hike rates by 50 bps although there are some that believer the recent data only warrants a 25 bps increase.
The BoE and ECB are expected to bump interest rates by 0.50%.

EURUSD traded in a 1.0854-1.0913 range in a choppy session. A surprise jump in Spanish inflation (HICP actual 5.8% y/y vs 5.5% in Dec.), supported prices as it helps ensure the ECB will hike 50 bps. Euro area Services Sentiment, Business Climate and Economic Sentiment, improved in January while German Q4 GDP disappointed.

GBPUSD bounced in a 1.2370-1.2416 range. Prices are nearly unchanged from Friday’s close and GBPUSD technicals are bullish above 1.2330.

USDJPY see-sawed in a 1.2922-130.28 band, finding the low in Asia then rallying to 130.23 in NY. A modestly higher US 10-year Treasury yield provided some support.

NZDUSD churned in a 0.6474-0.6506 range. Gains from a better-than-expected trade report evaporated in Europe as commodity prices inched lower.

There are no top tier Canadian or US economic reports today.