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USD / CAD - Canadian dollar choppy and directionless

- Inflation remains stubbornly elevated in Eurozone.

- US 10-year Treasury yield breaks above 4.0%

- US dollar in demand, GBP underperforms.

USDCAD snapshot open 1.3616-20, overnight range 1.3585-1.3632, close 1.3591, WTI $78.27, Gold $1831.86

The Canadian dollar is rangebound. Traders are hoping that Friday’s US and Canadian employment reports will be the catalyst to break USDCAD out of the 1.3440-1.3680 which has contained price action since February 20.

Recent economic reports from the US indicate that inflation pressures are pervasive throughout the economy. The latest came from yesterday’s ISM Manufacturing Survey where prices paid, at 51.3, is in expansion territory and sharply higher from 44.5 previously.

Fed officials continue to chirp about higher inflation necessitating higher rates for longer. Atlanta Fed President Raphael Bostic said, “I think we will need to raise the federal funds rate to between 5% and 5.25% and leave it there until well into 2024. This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance and thus lower inflation.

The Fed comments and the ISM data fueled a broad US dollar rally, which knocked stocks and the Canadian dollar lower, while triggering a surge in the US 10-year yield through 4.0% to 4.044% overnight.

The major Asian equity markets modestly lower and European bourses are on the negative side of flat. S&P 500 futures are down 0.555 in early NY.

EURUSD traded in a 1.0606-1.0672 range and is probing the low as this is being written. Eurozone Core-HICP inflation climbed more than forecast rising 5.6% y/y compared to the forecast and January reading of 5.3%. Headline CPI rose 8.5% (forecast 8.2%, previous 8.6%).

The results support views of at least two 50 bp ECB rate hikes in the coming months.

GBPUSD is at the bottom of its overnight 1.1945-1.2035 range. Traders are still digesting Bank of England Governor Andrew Bailey’s comments yesterday, which seemed to indicate a lack of desire for higher UK interest rates, which is in contrast with the ECB outlook.

EURGBP demand weighed on prices.

USDJPY rallied in a 136.03-136.86 range as dovish comments from the BoJ nomination hearings and rising US 10-year yields triggered fresh buying.

AUDUSD traded in a 0.6722-0.6765 range weighed down by broad US dollar strength. However, losses were limited due to expectations that the RBA will hike rates next week and will continue to do so until the OCR rate reaches 4.25%.

US weekly jobless claims are expected to rise 3,000, from 192,000 to 195,000.