Canadian Dollar Update, June 17, 2021 – Canadian Dollar Plunges
USD/CAD Open: 1.2319-23, Overnight Range: 1.2265-1.2345, Previous Close: 1.2278
WTI Oil is at $71.26 and gold is at $1,773.10. US markets are mixed today.
For today, USD resistance is at 1.2363. Support is at 1.2276.
• FOMC projects 2 rate hikes in 2023, surprising markets
• ECB to maintain dovish policy says ECB Chief Economist
• US dollar opens with sizeable gains vs G-10 major currencies
The Canadian dollar is in free-fall. A surprisingly hawkish FOMC outlook sparked a wave of Canadian dollar selling that has continued unabated since Fed Chair Powell’s press conference ended. And the Canadian dollar isn’t even the worst-performing major G-10 currency against the US dollar. That dubious honour goes to the Swiss Franc, which has dropped 1.76% between yesterday and today’s NY open.
FOMC members appear to have hard the market clamour around rising inflation risks. They reacted by not only raising their PCE inflation forecast to 3.0% from 2.2% in March, but they also pencilled in two rate hikes in 2023.
That’s a big move considering that just three months ago, eleven of the eighteen Committee members expected interest rates to remain unchanged in 2023. Now only five members have that view.
Traders also reacted to Fed Chair Powell suggesting that the Committee may start the taper conversation while ignoring the fact that the discussions have not started.
The Canadian dollar was hammered as the prospect of two US rate hikes erased the advantage the currency had benefited from when it was just the Bank of Canada forecasting rate increases.
And that forecast was for just one rate hike. Yield differentials shifted in favour of the US dollar.
Canadian dollar traders are ignoring West Texas Intermediate (WTI) oil prices which remain supported in the $72.00/barrel area.
Bank of Canada Governor Tiff Macklem testified before the Senate Banking Committee yesterday. Mr. Macklem balanced a reasonably upbeat economic assessment with caution about choppy Q2 growth due to the third-wave coronavirus outbreak.
EURUSD dropped below support in the 1.1990-1.200 area and fell to 1.1927 in NY trading. The sell-off was exacerbated after comments by ECB Chief Economist Philip Lane. He said it was premature to discuss tapering the ECB PEPP program, highlighting the divergent ECB and FOMC monetary policy outlooks.
AUDUSD and NZDUSD were unable to get any traction from better than expected economic data. Australia added 155,200 jobs in May, well above the forecast for a 30,000 gain. New Zealand Q1 GDP surged 1.6% q/q, well-above the 0.5% estimate. However, broad US dollar demand due to the hawkish FOMC outlook trumped the data, and both currency pairs dropped.
Today’s US data includes weekly jobless claims and the Philadelphia Fed Manufacturing survey.
Today’s Suggested Range USD/CAD: 1.2270 – 1.2370