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USD / CAD - Canadian dollar falls through the floor

- Hawkish Powell sinks Canadian dollar.

- Bank of Canada ahead-no change in rates expected.

- US dollar consolidates Tuesdays gains overnight.

USDCAD snapshot open 1.3753-58, overnight range 1.3748-1.3772, close 1.3754, WTI $77.38, Gold $1814.08

The Canadian dollar collapsed in the wake of Fed Chair Jerome Powell’s testimony to Congress yesterday.

Mr Powell reiterated previous hawkish comments and it appears that traders got his message. He said that inflation remained well above the FOMC’s 2.0% target, which was stating the obvious as January CPI was 6.4%.

Traders started getting nervous when he said “The data from January on employment, consumer spending, manufacturing production, and inflation have partly reversed the softening trends that we had seen in the data just a month ago.

They became more nervous when the Fed Chair said he anticipated: ongoing increases in the federal funds rate.” The kicker came at the end of his speech when he warned “the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Stocks and commodities plunged, and the US dollar soared. By the end of the day, the US dollar index had posted a new 2023 peak and the S&P index had dropped 1.53%. Gold lost nearly $50.00 and WTI oil fell 5.0% from yesterday to this morning.

The Bank of Canada is expected to leave interest rates unchanged. There will not be a press conference and markets have to wait until tomorrow’s speech by Senior Deputy Governor Carolyn Rogers for any insight.

EURUSD is near the top of its 1.0525-1.0553 overnight range as it consolidates losses from yesterday’s 1.0694 peak. range. EURUSD also suffered from soft Eurozone GDP data (actual Q4 1.8% q/q vs forecast 1.0% q/q).

GBPUSD dropped from 1.2064 yesterday to 1.1812 this morning. The prospect of higher US rates in the face of the BoE soon to be pausing its rate hike cycle is weighing on the currency.

USDJPY traded in a 137.12-137.91 range and is near the bottom of that band in early NY trading. Prices are underpinned by concerns about a higher US 10-year yield.

AUDUSD consolidated yesterdays losses in a 0.6569-0.6607 range. RBA Governor Philip Lowe suggested a pause in rate hikes was possible, but rate decisions would be data dependent.