USD / CAD – Powell Contradicts Himself

– US nonfarm payrolls expected to rise 200,000.

– Canada employment to have risen by 20,000 in February.

– US dollar soft due to improved risk sentiment.

USDCAD: open 1.3443-47, overnight range 1.3432-1.3465, close 1.3460, WTI $78.55,Gold, $2168.23

The Canadian dollar climbed rapidly yesterday in the wake of Fed Chair Powell’s semi-annual testimony to Congress. Mr Powell was asked by a Senator how close the Fed was to cutting rates and answered by saying “not far.” That is what traders wanted to hear.

The US 10-year Treasury yield dropped from 4.12% to 4.07% this morning and the S&P 500 index soared to close with a gain of 1.03%. The US dollar index (DXY) fell from 103.20 to 102.75 today.

Powell’s “not far” comment seems to contradict an earlier comment when he said “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Today’s nonfarm payrolls report may provide some clarity to rate cuts being “not far” or needing to “attain greater confidence.” NFP is expected to add 200,000 jobs but if the results surprise to the upside, like they did last month, the US dollar will recoup all of its recent losses.

President Biden’s State of the Nation address last night may have been entertaining for politicians and pep rally aficionados, but traders could not care less.

Canadian dollar traders are patiently awaiting today’s Canadian Labour Force Survey which is expected to show Canada added 20,000 new jobs compared to 37,300, last month. The unemployment rate is expected to tick up to 5.8% from 5.7%. A stronger than expected result will reinforce the BoC view that rates need to remain in restrictive territory for some time.

However, the US NFP data will be the catalyst for USDCAD direction while the Canadian numbers will only play a role if they are substantially offside from the consensus.EURUSD is consolidating yesterday’s gains in a 1.0926-1.0956 range. The ECB left interest rates unchanged but hinted that they could go lower.

GBPUSD rallied, rising from 1.2801 to 1.2841, after Powell’s comments gave new life to risk sentiment.

USDJPY traded poorly and dropped from a peak of 148.12 in Asia to 146.88 just before NY opened. The recent comments from BoJ officials alluding to rate hikes combined with hopes that US rate cuts are “not far” are weighing on prices.

AUDUSD rallied on the improvement in risk appetite, rising from 0.6619 to 0.6649 where it trades in early NY.

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