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USD / CAD - Canadian dollar adds to losses

- Risk aversion soars onus bank stock turmoil.

- US and Canadian employment data on tap today.

- US dollar opens mixed but still bid.

USDCAD snapshot open 1.3836-40, overnight range 1.3821-1.3860, close 1.3827, WTI $75.10, Gold $1832.98

The Canadian dollar attempted to rally yesterday but failed miserably. A combination of broad US dollar strength ahead of today’s US employment data and then a bout of risk aversion stemming from American bank woes drove the Canadian dollar to a level last seen in October 2022.

USDCAD gained 1.9% since Monday’s 1.3602 low, reaching 1.3860 overnight. Yesterday, dovish comments from Bank of Canada Senior Deputy Governor Carolyn Rogers supported the gains.

Mr Rogers described the BoC’s decision to leave interest rates unchanged at Wednesday’s monetary policy meeting as a tailored response to Canadian circumstances. She justified the move by saying the economy needs time to adjust to the 425 bps of tightening that occurred over the past year. She pointed out that the BoC was the second major central bank to raise rates and the first to end quantitative easing.

She said Canada’s unique circumstances allows the BoC to chart its own course to get back to price stability.

Traders believe that USDCAD will strengthen in the face of aggressive Fed tightening while the BoC is on hold.

Canada’s February employment report is expected to show a gain of 15,000 jobs which is sharply below the 150,000 seen in January.

Weaker than expected data will have far less impact on USDCAD trading then a sharply higher result. That’s because another strong employment gains would suggest that the BoC decision to pause rate hikes was premature.

Nevertheless, it is the US nonfarm payrolls data that will roil markets. The NFP forecast is for a gain of 205,000, and an unemployment rate unchanged at 4.0%. A higher then expected result would lead to speculation of a 50 bp rate hike at the March 22 meeting.

The S&P 500 plunged 1.85% yesterday on a wave of risk aversion stemming after a couple of small banks experienced sever financial woes.

Some crypto company bankruptcies exposed massive losses on bond holdings by Silicon Valley Financial group as the company attempted to raise funds, which also dragged down major money center banks.

EURUSD traded sideways in a 1.0575 to 1.0606 range. German HICP inflation was 9.3% y/y in February, as expected. Traders are cautious ahead of today’s US data and next week’s ECB meeting.

GBPUSD had a good day, rising from 1.1909 to 1.2008 after January's GDP rose 0.3% m/m, compared to the 0.1% increase expected and the 0.5% drop in December. The results mean a technical recession may be avoided.

USDJPY rallied choppily in a 135.83-136.99 range due to relief that Bank of Japan Governor Haruhiko Kuroda didn’t dish up any surprise monetary policy moves. He left rates unchanged at negative 0.1% and left the yield curve control cap at 0.50%.

AUDUSD traded in a 0.6566-0.6601 range, weighed down by weaker commodity prices and broad US dollar strength.