– BoC warns of more aggressive policy response
– Risk sentiment cautious on possible Putin/Zelensky meeting
– CAD, AUD outperform as US dollar opens mixed
USDCAD Snapshot: open 1.2481-85, overnight range-1.2479-1.2502, close 1.2477, WTI open $109.41, Gold open $1,932.48
The Canadian dollar consolidated gains from Friday in a subdued overnight session. The Canadian dollar is supported by firm oil prices and a more hawkish Bank of Canada interest rate outlook.
Friday, Bank of Canada Deputy Governor Sharon Kozicki reiterated that higher interest rates are needed to lower inflation. She said, “A key concern for us is the broadening of price pressures—around two-thirds of the components in the consumer price index are now exhibiting inflation above 3%. Persistently elevated inflation increases the risk that longer-run inflation expectations could drift upward.”
She warned that the BoC is ready “to act forcefully,” which many analysts take to mean 0.50% rate hikes are in the pipeline.
The BoC rate outlook matches the Fed, which is also considering hiking rates 0.50% rather than the usual 0.25%.
The Canadian dollar is also benefitting from the prospect of a prolonged period of oil prices at elevated levels. West Texas Intermediate (WTI) is trending higher while prices are above $98.00/barrel with a break above resistance at $130.00/b targeting $150.00/b.
The bullish oil outlook received additional support after the UAE and Opec said they would not increase production in May. Some analysts believe the cartel does not have the spare capacity to ramp up production.
Asia equity indexes closed on a mixed note. The Nikkei 225 fell 0.73% while Australia’s ASX 200 index squeezed out a 0.08% gain. European bourses have shrugged off Russia/Ukraine war worries and a 1.62% gain in the German Dax leads the major indexes higher. Wall Street is poised to open on a flat note.
Gold prices have slumped on reports that Putin will meet with Ukraine’s Zelensky in Turkey this week. Oil prices are also lower due to concerns the COVID lockdowns in Shanghai and the possibility of an Iran nuclear deal.
The US 10-year Treasury yield climbed to 2.555% before sliding to 2.496% in NY due to concerns the Fed will be hiking interest rates in 0.50% increments.
EURUSD dropped in Asia until finding a bottom at 1.0946, then recovered to 1.0999 just before the US started.
GBPUSD traded choppily in a 1.3127-1.3183 band.
USDJPY rallied from 122.01 to 125.10 after the Bank of Japan intervened in the bond market to cap 10-year JPB yields at 0.25%.
The US and Canadian data calendars are empty.