U.S. 10 year bond yields have now cleared the 3.0% benchmark and are now trading at 3.02%, up 20 basis points in the past month, however, Canada’s 10 year bond is at 2.36%, up 17 basis points in the past month. As long as the Bank of Canada remains on the sidelines in regard to further rate hikes, then expect further weakness. Currently the higher price of oil is keeping the Canadian from falling even more.
There is no Canadian economic data this
USD-CAD has remained buoyant since posting a three-week high of 1.2861 during Tuesday’s Asian session. The move extended a rebound from last Wednesday’s two-month low at 1.2527. A correction in oil prices, which have descended back under $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 and associated rise in U.S. Treasury yields, 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 remained heavy, drifted back to the 1.2200 area, although so far leaving yesterday’s three-month low at 1.2181 untroubled. Signs of weakening growth momentum in the Eurozone economy has, juxtaposed to looser U.S. fiscal policy and Fed tightening expectations, have been driving EUR-USD lower, although ECB’s Vasiliauskas today suggested that that hawkish camp among his fellow policymakers has been growing, while his colleague Mersche said that inflation hasn’t weakened as much as the ECB expected. The remarks from the ECB members raises the risk that the ECB will still commit to the end of QE earlier than has been expected. The central bank meets on policy tomorrow. A key EUR-USD level to the downside is 1.2154, which marks the low point of the broadly sideways range that’s been play for nearly three months now, while an initial resistance level is at 1.2245.