– Bank of Canada MPR and policy statement ahead.
– Risk sentiment improves after surprise China news.
– US dollar trading defensively.
USDCAD: open 1.3446-50, overnight range 1.3436-1.3479, close 1.3461, WTI $74.44, Gold, $2033.08.
The Canadian dollar bounced inside its recent range, albeit with a modestly bullish bias. That’s because the People’s Bank of China (PBoC) surprised markets by pre-announcing a hefty 50 bps cut in the Reserve Requirement Ratio (RRR) to 10% for big banks. The cut will inject $139 billion of long-term liquidity into the market. Chinese equity traders loved the news. Hong Kong’s Hang Seng index surged 3.56% while the Shanghai Shenzhen CSI 300 index gained 1.40%.
However, some analysts suggest the move was an act of desperation as authorities scramble to restore confidence in equity markets following a rash of ham-fisted policies by Xi Jinping.
Nevertheless, the news helped lift European stocks and US S&P 500 futures. Those indexes also got a helping hand from strong US tech company earnings reports that have boosted European equity indexes today.
Canadian dollar traders are looking ahead to this morning’s release of the quarterly Monetary Policy Report (MPR), the policy statement, and Governor Tiff Macklem’s press conference. The higher than expected inflation reading in December has raised fears that Mr. Macklem will deliver a hawkish outlook and even mention that interest rates could rise. If so, it would give the Canadian dollar a short-term lift. However, most people do not think there is any chance of a rate hike, especially since the domestic economy is in or near a recession.
EURUSD traded higher inside a 1.0844-1.0908 range. Eurozone and German PMI data was mixed and supports the hawkish views of some ECB policymakers. The ECB meets tomorrow.
GBPUSD rose from 1.2677 to 1.2774 due to better than expected flash PMI data which suggested supply chain disruptions from missile attacks in the Red Sea, raised prices for businesses, which is a reason for the Bank of England to delay rate cuts.
USDJPY traded in a 147.38-148.40 range due to renewed BoJ tightening concerns and higher US Treasury yields.
AUDUSD rallied in a 0.6566-0.6610 range due to firmer PMI data and improved risk sentiment following China’s latest stimulus news