The Canadian dollar is weaker due to comments from Bank of Canada Governour Poloz and higher U.S. interest rates. Poloz indicated that he was in no hurry to raise interest rates, he believes that the recent spike in inflation is temporary and he wants to maintain a cautious approach even as the US continues to see higher rates. This morning the USD reached a seven-week high against most currencies on the back of 10-year US bond yields moving to the 3% level, an important yardstick for investors. The 10-year yield hit its highest in over four years at 2.998 percent, driven by worries about the growing supply of government debt and accelerating inflation as oil and commodity prices climb. Also, the gap between US treasuries versus German government bonds is at a 29-year high, gave further strength to the USD.
USDCAD 1.2820, 1.2800, 1.2776 1.2850, 1.2870, 1.2900
USD-CAD clocked in a fresh two-week high at 1.2771 during the early Asian session today, extending a rebound from a two-month low at 1.2527, which was seen last Wednesday. A correction in oil prices, which have descended to back near $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of last Wednesday’s BoC policy meeting, as the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.
EUR-USD has clocked a fresh 17-day low at 1.2233, with markets ignoring both a narrowing in the U.S. yield advantage relative to core Eurozone yields and above-forecast PMI data out of the Eurozone in flash April estimates. The gains in the dollar are concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines. The yield is presently up 2.8 bp, at 2.988%, although the Bund yield has rose over 4 bp. In the bigger picture, EUR-USD still remains near the midway levels of a broad consolidation range that’s been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time. Near-term risks remain skewed to the downside. Initial support is at 1.2220.