Source: Statistics Canada
FX markets nervous following Tuesday’s price action
Bank of Canada rate decision and quarterly MPR ahead
US dollar opens mixed but keeps most of yesterday’s gains
USDCAD open 1.2592-96, Overnight Range 1.2585-1.2622, close 1.2613
FX at a Glance
Source: IFXA/RP
Canada inflation jumped in March which Statistics Canada downplayed by pointing out that” A significant proportion of this increase was attributable to a steep decline in prices in March 2020.”
CPI rose 2.2% y/y in March, but was a tick below the forecast for a 2.3% increase. USDCAD jumped to 1.2622 from 1.2605 following the news.
Financial markets were relatively complacent yesterday. FX volatility was low, and equity prices were consolidating gains near-record levels, preparing for another move higher. Then someone got spooked about COVID-19, and in the words of Ronnie James Dio, “when you listen to fools, the mob rules.”
Coronavirus concerns set off a wave of risk aversion sentiment yesterday, and FX markets haven’t recovered. India reported close to 2,000 deaths on Monday, a number that health experts and government officials believe to be vastly understated. Japan is reportedly ready to declare another state of emergency in Tokyo and Osaka due to a fourth-wave coronavirus outbreak.
The news knocked 10-year Treasury yields down from 1.607% to 1.559% and sent Wall Street stocks lower. Today, Asia equity markets closed with losses, led by a 2.03% drop in Japan’s Nikkei 225.
European equity traders appear less concerned about COVID-19 concerns in Asia because areas in the Netherlands, France, and Germany are planning to ease pandemic restrictions in the coming days and weeks.
USDJPY was battered by yesterdays shift into “risk-off” trades. The drop in US Treasury yields knocked USDJPY from 108.51 to 107.89 overnight. The sell-off was exacerbated by safe-haven demand for yen due to the Indian and Japanese coronavirus outbreaks.
AUDUSD fell to 0.7701 from 0.7815 yesterday due to the negative risk sentiment. Australia Retail Sales were better than expected (actual 1.4% m/m vs February -0.8%), but were not a factor. NZDUSD ignored the Q1 CPI report (actual 1.5% q/q vs forecast 1.4%), and tracked AUDUSD moves.
The BoC is expected to announce it is tapering its QE purchases. Traders will be looking for any hints that the BoC may bring forward the timing of its next rate increase.
The US data calendar is empty.
USDCAD Technicals.
Chart: USDCAD daily
FX open, high, low, and previous close
Source: Saxo Bank
