The Federal Reserve Open Market Committee statement was a tad less benign than anticipated. Very modest tweaks in the language increased the odds for a March rate hike from 50.7% at the end of December to 83.1% yesterday.
The US dollar rallied on the news and added to the gains in overnight trading, except against Euro and Sterling. EURUSD bottomed out at 1.2383 just as Europe opened for business and then roared ahead to 1.2450 just ahead of the New York start. ECB member Benoit Coeure’s comments in the past day, alluding to an ECB reaction to a US currency war and other remarks about terminating the QE program, tempered buying enthusiasm.
Sterling climbed from a low of 1.4160 to 1.4273, unperturbed by US rate hike concerns or even fresh negative Brexit news. A UK MP backbencher is threatening to resign which would weaken Theresa May’s already shaky minority government. The Prime Minister has rejected the EU’s “status quo” provision of equal rights for EU citizens who arrived post-Brexit. However, weaker than expected UK PMI data (Actual 55.3 vs forecast 56.5) did the trick and GBPUSD dipped as New York opened.
In Asia, mixed to firm Australia economic data lifted AUDUSD but the gains were unsustained. AUDUSD dropped from 0.8066 to 0.7996. NZDUSD’s fall was less dramatic. The risk of higher US rates impacted both currency pairs.
USDJPY added to yesterday’s post-FOMC statement gains, rising from 109.10 to 109.71. The prospect of US four rate hikes in 2018 (up from three) has bolstered Treasury yields and underpinned the currency. However, short-term technicals suggest that while prices are below 109.90 the rally is just a correction and the risk of a retest of 108.50 is high.
Oil prices are higher. WTI oil rose from $64.66/b to $65.40 supported by a hawkish price forecast for Brent Crude, by Goldman Sachs. They believe that oil markets have rebalanced six months earlier than forecast due to steady demand growth and Opec compliance to production cut quotas.
The Canadian dollar is under pressure. A more hawkish than anticipated Fed and a cautious Bank of Canada suggest Canadian rate increases will be smaller and lag those of the US. NAFTA cancellation risks are also lurking in the background.
The US dollar should continue to be supported while markets digest the tweaks to the FOMC message. Today’s ISM manufacturing report may give the dollar and added boost if it surpasses the 58.8 forecast. Traders will be looking for economic data to support 4 rather than 3, 2018 rate bumps.
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish while prices are above 1.2290 but need to break resistance at 1.2330 to suggest that 1.2250 is a short-term bottom and shift the focus to 1.2405. A break above 1.2405 would target 1.2550. For today, USDCAD support is at 1.2290 and 1.2250. Resistance is at 1.2330 and 1.2390.
Today’s range 1.2290-1.2370
