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USD / CAD – Canadian Dollar gains on shaky ground

– Canadian retail sales expected to have risen in February.

– Wall Street price action will guide FX markets today.

– USD opens claws back some of yesterday’s losses overnight.

USDCAD: open 1.3682, overnight range 1.3655-1.3688, close 1.3662, WTI $83.00, Gold, $2315.69

The Canadian dollar strengthened yesterday following better than expected US data and rising stock prices on Wall Street. Even so, the price action is merely noise ahead of Thursday’s US GDP report and Friday’s Fed favorite Personal Consumption Expenditures (PCE) Price Index.

On Tuesday, the S&P Global Manufacturing Index dropped into contraction territory (actual 49.9, forecast 52, previous 51.9) which led to chatter about the toll of high US rates on the economy. The rationale is a tad sketchy as analysts and traders prefer the Institute of Supply Management (ISM) PMI data. That’s because it has been published since 1948, far longer than the S&P data and is more US-centric, which makes it a key input into Fed deliberations.

Canadian Retail Sales data (forecast 0.1%, previous -0.3%) are unlikely to have any bearing on USDCAD trading as the data is stale and the Bank of Canada’s focus is on inflation.

Global equity markets rallied overnight with news that Tesla plans to produce a cheaper model, stoking positive sentiment. Japan’s Nikkei 225 index rose 2.42%, partly due to the rise in USDJPY and because of dovish BoJ comments. European indexes are higher and S&P 500 futures have gained 0.24%. The US 10-year Treasury yield climbed to 4.65% from 4.598% at the close.

EURUSD traded softer in a 1.0680-1.0715 band. The gains from better than expected German Ifo data faded quickly. EURUSD remains under pressure due to sharply divergent Fed and ECB interest rate outlooks.

GBPUSD fell to 1.2422 from 1.2465 as the impact from yesterday’s remarks by BoE Chief Economist Hu Pill suggesting the risks were greater from cutting rates too early than if they were cut too late. Analysts still expect the BoE will reduce UK rates by far more than the Fed.

USDJPY climbed inside a 154.74-154.96 range due to steady to firmer US Treasury yields and because the Bank of Japan is not expected to take any action at Friday’s monetary policy meeting.

AUDUSD rallied from 0.6482 to 0.6530 following higher than expected inflation data. CPI rose 1.0% q/q (forecast 0.8%) and Core CPI rose 4.0% topping the 3.8% forecast.

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