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USD / CAD - Canadian dollar sentiment flips to bullish

- Canada Q 4 GDP weaker than expected.

- Chinese PMI data surges, boosting global risk sentiment.

- US dollar gives up ground overnight, EUR outperforms.

USDCAD snapshot open 1.3597-01, overnight range 1.3587-1.3657, close 1.3646, close 1.3575, WTI $76.16, Gold $1834.79

The Canadian dollar recovered yesterday’s losses overnight after global risk sentiment took a turn for the better.

The Canadian dollar fell rapidly yesterday due to sharply weaker-than-expected Canadian GDP data and a drop in the S&P 500 index.

Canadian economic growth was flat in Q4 (actual 0 vs forecast 1.5% y/y). A drop in inventories was a key factor for the slowdown. There was a sliver lining in the cloud. Statistics Canada predicted that January GDP be 0.3% m/m, mainly because inventories have normalized.

Bank of Canada Governor Tiff Macklem is smiling as the GDP report validated his decision to announce a pause in rate hikes.

Nevertheless, it is the outlook for US interest rate rates that is dictating Canadian dollar direction and the Fed is still on a tightening path.

Analysts are continuing to debate whether the Fed will hike rates 25 bps or 50 bps on March 22.

Risk sentiment turned positive in Asia after Chinese Purchasing Manager Index (PMI) results surged far higher than expected. February Manufacturing PMI rose to 52.6 from 50.1 in January while Non-manufacturing PMI jumped to 56.3 from 54.4. The data is viewed as confirmation that China’s economy is recovering from the Zero-Covid policy.

The news powered the Shanghai Shenzhen CSI 300 index to a 1.41% gain, which helped drag the other major Asian equity indexes higher. Australia’s ASX 200 was the exception and it closed with a tiny 0.9% loss.

Better than expected Euro-area data and positive risk sentiment lifted European bourse higher across the board. S&P 500 futures have gained 0.40%.

EURUSD rallied hard, climbing to 1.0688 in NY trading from an Asia low of 1.0566. Improved risk sentiment, hawkish comments from ECB officials and hotter than expected German inflation are supporting prices. German Harmonized Index of Consumer Prices (HICP) rose to 9.3% y/y compared to the forecast for a 9.2% increase. The results ensure the ECB will raise rates by 50 bps on March 16.

GBPUSD traded in a 1.2015-1.2088 range supported by higher than expected UK Manufacturing PMI (actual 49.3 vs forecast 49.2).

USDJPY dropped to 135.27 from 136.46 on lower US Treasury yields.

AUDUSD traded in a 0.6697-0.6782 range. Prices hit the bottom after weaker than expected Q4 GDP data, then rallied following the Chinese PMI results.

US ISM Manufacturing PMI is ahead.