Canadian Dollar Update, February 22, 2023 – Canadian dollar consolidating losses
USD/CAD Open: 1.3554-58, Overnight Range: 1.3529-1.3559, Previous Close: 1.3537
WTI Oil open at $75.48 and gold open at $1,833.50. US markets are lower today.
For today, USD resistance is at 1.3626. Support is at 1.3494.
- Loonie continues to suffer from cooler CPI data
- RBNZ raises rates by 50 bps
- US dollar opens on mixed note after dull overnight session
The Canadian dollar got slammed yesterday after Statistics Canada revealed inflation cooled in January. They said, “The Consumer Price Index (CPI) rose 5.9% year over year in January, following a 6.3% increase in December.” The headline masks some serious issues. Food, energy and rent prices continue to rise and that will not change anytime soon.
BoC Governor Tiff Mackem will be smiling as the results validate his decision to pause raising Canadian interest rates.
The inflation data was only partly responsible for the USDCAD rally that took prices from 1.3440 to 1.3547. A spike in the US 10-year Treasury yield from 3.84% to 3.96% sparked a blizzard of US dollar buying and USDCAD went along for the ride.
The major Asian equity markets followed Wall Street’s lead and closed with losses led by a closed 1.34% drop in Japan’s Nikkei 225 index. European bourses are in the red as well with the UK FTSE 100 index down 1.05%. S&P 500 index futures are flat.
EURUSD rose to 1.0663 in Asia the retreated to 1.0626 in Europe. German Ifo expectations improved to 88.5 in February, from 86.4 in January while EU-harmonized inflation rose 9.2% due to rising energy and food prices.
ECB policymaker Francois Villeroy pushed back against market pricing of the terminal rate saying, “There’s been an excess of volatility on expectations for the terminal rate.” Economists at Deutsche Bank ignored Mr Villeroy’ s message and raised their terminal rate forecast to 3.75% from 3.25%.
GBPUSD consolidated Tuesdays gains in a 1.2065-1.2134 range as it continued to garner support from Tuesdays strong PMI data. The currency is benefiting from positive developments around the Brexit Northern Ireland protocol and on anticipation of two additional BoE rate hikes.
USDJPY bounced in a 134.56-135.05 range. Prices are underpinned by the US 10-year yield which held on to yesterday’s gains and traded in a 3.925-3.955% band.
AUDUSD traded with a negative bias falling from 0.6864 to 0.6813 after slower than expected wage growth eased RBA rate hike fears.
NZDUSD had a whippy Asian session, bouncing between 0.6208 and 0.6244 after the RBNZ announced a widely expected 50 bp rate hike bringing the Overnight Cash Rate (OCR) to 4.75%. Some analysts expected a smaller rate bump due to Cyclone Gabrielle, but the policymakers said it was too early to assess the impact on monetary policy. The RBNZ expects further hikes until rates reach 5.50%.