– Bank of Canada Governor repeats dovish view.
– 10-year Treasury yield is grinding higher.
– US dollar trading defensively after uneventful overnight session.
USDCAD: open 1.3481-85, overnight range 1.3470-1.3496, close 1.3495, WTI $73.81, Gold, $2033.03
The Canadian dollar sentiment flipped from bearish to bullish yesterday after the US 10-year Treasury yield slid from its 4.155% peak yesterday. It consolidated its gains in an uneventful overnight session. There is a lack of actionable economic data to invigorate markets, especially in Asia where large swaths of the population get ready for Lunar New Year holidays.
Bank of Canada Governor Tiff Macklem’s speech was just a rehash of previous remarks. The Governor glossed over how it bungled the inflation file and crowed about how the BoC’s aggressive response slowed demand, rebalanced the economy, and lowered inflation. He repeated that “Governing Council’s discussion about future policy is shifting from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance.”
Traders justifiably ignored the speech and focused on comments from Fed officials. Bank of Cleveland Fed President Loretta Mester expects the Fed to cut rates but later in the year. She said, “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%. If the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down.”
Her colleague Minneapolis Fed President Neel Kashkari was also cautious. He said, “We’re not all the way there yet, but we’ve made a lot of progress on inflation. If we just think we’re going to continue what we’ve been experiencing, we’re on track to get back to our 2% target.”
Both officials echoed remarks made by Fed Chair Jerome Powell, and bond traders noticed. The US 10-year Treasury yield slipped from 4.155% to 4.09% by the end of the day. However, they have backed up overnight and are at 4.132% in NY.
Asian equity indexes closed mixed. Japan’s Nikkei 225 index fell 0.11% while Australia’s ASX 200 gained 0.45%. Chinese equity indexes were buoyed by State intervention, which lifted the Shanghai Shenzhen CSI 300 index up 0.96%. European bourses are in negative territory led by a 0.40% drop in the UK FTSE 100 index, but S&P 500 futures have squeezed 0.8% higher.
Oil prices are not really a factor for Canadian dollar traders. West Texas Intermediate (WTI) inched higher, rising from $73.23 to $74.21 before retreating to $73.81 in NY. Traders ignored the 0.647 million barrel increase in US crude inventories, as of February 2.
EURUSD traded in a 1.0751-1.0774 range and is a tad firmer compared to yesterday, which is also the 100-day moving average. Eurozone retails were a disappointing -1.1% m/m, compared to November’s 0.3% increase.
GBPUSD is a tad firmer, in line with general FX moves, and traded in a 1.2593-1.2638 range. The currency got a bit of a lift from stronger than expected UK house price data.
USDJPY climbed from 147.72 to 148.15 due to the back-up in US Treasury yields. PIMCO is the latest investment firm to speculate that the BoJ will be cutting rates as early as March.
AUDUSD rallied in a 0.6517-0.6541 range, benefitting from the RBA’s hawkish hold yesterday.
There are no top tier US or Canadian economic reports today.