Home Daily Commentaries CAD weakens as government bond yields tumble

CAD weakens as government bond yields tumble

Daily Currency Update

The Loonie weakened against the US dollar as the Canadian government’s 10-year bond yields fell by 6 basis points (bps) to 2.85%. USD/CAD clung to modest gains at the 1.355 level. Geopolitical fears surrounding Russia and China along with a cautious mood ahead of this week’s growth and inflation data release added to sour market sentiments. China’s alleged support to Russia in the Ukraine conflict also strengthened poor sentiments. The Bank of Canada’s (BoC) dovish stance as compared to the Federal Reserve was another risk catalyst that kept the USD/CAD buyer’s hopes high. Tiff Macklem, BoC governor, does not seem inclined to raise the interest rates any further as inflation is in check and consistently declining. However, at the same time, he has not declined the possibility of increasing the rates if inflation moves up. Oil prices did show a slight sign of recovery. Backed by the selloff in the USD index and growing optimism for increases in travel and fuel demand due to the Chinese May Day holiday. West Texas Intermediate oil sits near the 78.70 level, pausing the two-day uptrend.

Key Movers

The US dollar was seen recovering from its low as the greenback found its footing amidst a broad risk mapping. As the US debt ceiling deadline approaches, the House of Representatives is expected to vote on a Republican-led debt and spending bill this week and rising uncertainty about the outlook for US Federal Reserve interest rates are weighing on market sentiments. Investors are adjusting their US dollar positions in preparation for a week of high-profile quarterly data releases and awaiting the US economic data release.

The euro is correcting after it fell short of the 1.1075 year-to-date high. During the early European trading session, the EUR/USD fell around 0.1% but held above the 1.10 level. The EUR rose by about 1.7% in April and over 4% since the beginning of March. Eurozone GDP data will be published on Friday, April 28. The European Central Bank (ECB) chief economist, Philip Lane, has gone on the record saying that interest rates will rise at the May 4th policy meeting but whether they will be raised further, depends on the inflation data.

The sterling tumbled sharply to the 1.2480 level after it failed to sustain the resistance of 1.25 against the greenback. Markets are betting on another 25 bps rate hike at the upcoming policy meeting to keep inflation under control. The Bank of England (BoE) hasn’t been able to stop inflation from rising. The inflation rate has remained stuck in the double-digit territory despite the aggressive monetary policy from the BoE and strict fiscal policy from policymakers. GBP/USD continues to remain under renewed bearish pressure at 1.2400 levels.

Expected Ranges

  • EUR/CAD: 1.4929 - 1.4987 ▲
  • GBP/CAD: 1.6865 - 1.6934 ▼
  • AUD/CAD: 0.9028 - 0.9072 ▼
  • USD/CAD: 1.3525 - 1.3624 ▲