More volatility expected ahead of Central Bank events
Tuesday 7 March, 2023
Daily Currency UpdateAfter a subdued start to the week, the Canadian dollar is falling on the back of US dollar strength as the US Federal Reserve begins its 2 day congressional testimony. Following strong US economic data, further interest rate increases remain squarely on the table. Markets will be keenly watching today for guidance on how aggressive future hikes will be and how much further this could spur the USD while simultaneously pushing the Loonie lower. US economic data in recent weeks has been strong, and numerous Fed governors have reiterated that they will likely need to keep US interest rates higher for longer in order to fight inflation. Today is an empty data roster in terms of data releases, with all eyes looking ahead to the Bank of Canada (BoC) rate decision on Wednesday. Following a year of aggressive rate hikes, from 0.50% in January 2022, to 4.5% in January 2023, the BoC have announced a “conditional pause” on rate hikes while they assess the impact of the 8 hikes they have actioned thus far. Though it’s taking time, the hikes are slowly working as shown by inflation in Canada falling from a peak of 8.1% last summer to 5.9% in January. With economic growth slowing to a grind in 2023, they expect a further decrease in deflation to 3% by mid-year. Well on path to the BoC’s 2% inflation target.
Key MoversThe West Texas Intermediate oil price is maintaining the $10 trading channel it has been trading in for most 2023 and is now moving lower following recent highs just north of $80. Gold prices started the week soft, also firmly focused on Federal Reserve Charmain, Jerome Powell’s testimony as the commodity inversely tracks Treasury yields. XAU/USD can be quite sensitive to treasuries, which are partly a reflection of monetary policy expectations.
- EUR/CAD: 1.4527 - 1.4559 ▲
- GBP/CAD: 1.6317 - 1.6420 ▲
- AUD/CAD: 0.9067 - 0.9177 ▲
- USD/CAD: 1.3600 - 1.3718 ▲