Canadian Dollar Update, April 6, 2022 – Canadian Dollar Inches Lower
USD/CAD Open: 1.2489-93, Overnight Range: 1.2485-1.2508, Previous Close: 1.2487
WTI Oil is at $97.05 and gold is at $1,929.10. US markets are lower today.
For today, USD resistance is at 1.2562. Support is at 1.2496.
- Treasury yields soar after Fed Vice Chair comments
- Balance sheet reduction discussion key item in FOMC minutes
- US dollar rallies on higher treasury yields
The Canadian dollar rally was abruptly cut short yesterday when risk sentiment soured. USDCAD smashed below support in the 1.2430-40 area and dropped to 1.2402 before fully reversing the move.
Traders have plenty of reasons to expect further Canadian dollar strength. The Bank of Canada (BoC) is widely expected to announce a 0.50% rate increase on April 13, followed by another 0.50% bump on June 1. BoC officials are concerned about the risk of rapidly rising inflation, stoked by wage gains and commodity prices.
Monday’s release of the Business Outlook Survey supports the BoC concerns. Businesses are running at almost full-capacity, and many reported they would struggle to meet increased demand which implies higher prices.
The Canadian dollar continues to be underpinned by robust crude prices. West Texas Intermediate rallied from yesterday’s $99.88/barrel low to 103.97 overnight despite a 1.0 million barrel increase in US crude inventories in the week ending April 1. Traders continue to be concerned about the risk of sanctions on Russian oil.
Global risk sentiment soured yesterday after Fed Vice Chair Lael Brainard warned about the need for a “rapid pace” of balance sheet reduction. She said, “It is of paramount importance to get inflation down,” adding “the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”
The US 10-year Treasury yield soared from 2.548% yesterday to 2.64% today which knocked Wall Street for a loop. The S&P 500 closed down 1.26%, setting the tone for Asian markets. Hong Kong’s Hang Seng reopened after a long weekend, only to finish the session with a 1.87% loss.
The trend continues in Europe with the French CAC index leading the European bourses lower. S&P 500 futures are pointing to a negative open on Wall Street today.
EURUSD bounced off its session low of 1.0875 and is trading at 1.0825 in NY. The gains are a bit of a relief rally as EU, US and other allies avoid slapping sanctions on Russian oil. Euro area February PPI was a weaker than expected 1.1% (forecast 1.3%) but not a factor.
GBPUSD traded in a 1.3047-1.3106 band. Prices are undermined by the surge in US Treasury yields but found a bit of support after the Construction PMI index remained unchanged from February.
USDJPY surged on the back of soaring Treasury yields, rising to 124.04 from 123.55
AUDUSD and NZDUSD are quietly bid due to firmer commodity prices.
Today’s Suggested Range USD/CAD: 1.2460 – 1.2560