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USD / CAD - Canadian dollar rally stalls

- US 10-year Treasury yields rebound from recent low.

- Plenty of Fed-speak and US data to keep traders interested.

- US dollar claws back some gains overnight and opens with a bid.

USDCAD: open 1.3700-04, overnight range 1.3677-1.3736, close 1.3682, WTI $76.56, Gold, $1964.97

The Canadian dollar rally stalled, and the currency drifted lower overnight and in early NY trading. The price action is being driven by the US interest rate outlook. Following Tuesday’s better-than-expected US inflation data, many traders became convinced that the Fed would be cutting rates as soon as the May 1, 2024, meeting, and markets moved accordingly.

When the dust settled, traders became less convinced of that outlook, partly because the market has a habit of getting it wrong when they anticipate a Fed pivot. Bond traders sold bonds and lifted the US 10-year Treasury yield from 4.42% yesterday to 4.52% overnight.

That was enough to drive Asian equity indexes into the red. Japan’s Nikkei 225 index closed with a loss of 0.26% while Australia’s ASX 200 fell by 0.67%. European bourses are trading with a mixed bias. The UK FTSE 100 index is down 0.50% while the German Dax index has squeezed out a 0.32% gain. S&P 500 futures are down modestly (0.15%) and suggest a slightly negative open on Wall Street.

The Canadian dollar isn’t getting any support from oil prices. West Texas Intermediate (WTI) has retreated from a post-CPI peak of $79.37/b on Tuesday to a low of $75.69 overnight. Prices have recovered somewhat but are likely to remain choppy in a $70-$80/barrel range. Earlier this week, OPEC and the International Energy Agency suggested that crude demand would remain buoyant into the new year, which underpinned prices. However, yesterday’s US Energy Information Administration (EIA) data showing crude inventories rose by 3.6 million barrels last week helped to downgrade the supply constraint issues.

EURUSD traded erratically in a 1.0830-1.0861 range with price action tied to the prevailing US dollar sentiment at any given time.

GBPUSD eased inside a 1.2376-1.2425 band. Bank of England board member Megan Greene responded, pushing back against easing speculation, saying it was too early to consider cutting rates.

USDJPY rallied from 151.12 to 151.48 on the back of firmer US Treasury yields. Traders ignored improved Machinery orders and trade data.

AUDUSD traded negatively in a 0.6461-0.6522 band despite better-than-expected job gains data (actual 55,000 vs. forecast 20,000), perhaps because most of the gains were part-time jobs.

Today’s US data includes weekly jobless claims, Philadelphia Fed Manufacturing Survey, Capacity Utilization, and Industrial Production, along with comments from Fed officials.