- Risk sentiment improves slight with progress on debt ceiling talks.
- US Memorial Day weekend-bond and equity markets close early
- US dollar opens mixed after quiet overnight session.
USDCAD snapshot: open 1.3625-29, overnight range 1.3603-1.3653, close 1.3643, WTI $72.38, Gold $1953.79
The Canadian dollar tested support overnight and it held. The subsequent retracement occurred following reports of progress being made in the US debt ceiling negotiations which could lead to a deal as early as this weekend.
The Canadian dollar story is tale of interest rates. A spate of robust US data in recent days has traders pricing in a 25 bp rate hike in July while simultaneously paring expectations for a series of rate cuts in Q2. Traders are now expecting just one rate cut of 25 bps in December.
The prospect of a July rate bump while the Bank of Canada leaves its benchmark rate unchanged widened the CAD/US interest rate differential in favour of the US, which suggests USDCAD downside is limited.
Oil prices tumbled from a peak of $74.25/barrel to $71.05 yesterday following comments by the Russian energy minister stating that Opec is unlikely to make any further production cuts. The remarks contradict the implication of Saudi Energy Minister Prince Abdulaziz bin Salman who warned speculators against shorting crude. That suggest WTI will consolidate in a $70.00-$74.00 range. EURUSD traded in an uninspiring 1.0720-1.0744 band. ECB Chief Economist Philip Lane predicted inflation would fall because of lower energy prices but his remarks did not impact trading.
GBPUSD inched higher overnight rising from 1.2313 to 1.2378 in Europe before easing to 1.2358 in early NY trading. Prices got a lift from better than expected Retail Sales which rose 0.5% m/m in April (forecast 0.3%) and 0.8% m/m ex fuel (forecast 0.3%). Risk sentiment improved slightly on hopes for a US debt ceiling deal and the prospect of another 1.0% of Bank of England rate hikes. However, the technical picture is bearish below 1.2450.
USDJPY drifted down from 140.10 to 139.51 with prices tracking the US 10-year Treasury yield which slipped to 3.781% from 3.83%. Tokyo inflation cooled in April (actual 3.2% vs March 3.5% y/y) but Core CPI rose 3.9% y/y, a forty-year peak) March 3.8% y/y).
AUDUSD dropped from 0.6505 to 0.6528 in Asia, making a new 2023 low in the process. This was following a disappointing April Retail Sales report. (actual 0% vs forecast 0.2%, March 0.4%). Prices inched higher into the NY open on mildly improving risk sentiment.
Today’s US data includes Durable Goods Orders (forecast -1%, previous 3.2% m/m) PCE Price index (forecast 3.9% y/y vs March 4.2%) and Michigan consumer sentiment (forecast unchanged at 57.7)
