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USD

08 Mar 2023

Bank of Canada Holds Rates, Loonie Tumbles as Forward Guidance Remains Dovish

Following through on a well-telegraphed pledge to hold policy steady, the Bank of Canada held its benchmark overnight rate at 4.50 percent this morning, and reiterated a “conditional” commitment to staying the course. The statement-only decision was not accompanied by new forecasts, but officials said “the latest data remains in line with the Bank’s expectation that CPI (Consumer Price Index) inflation will come down to around 3 percent in the middle of this year. Year-over-year measures of core inflation ticked down to about 5 percent, and 3-month measures are around 3½ percent. Both will need to come down further, as...

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08 Mar 2023

Bigger, Faster… Wronger?

Markets continue to brace for bigger and faster rate hikes from the Federal Reserve after Jerome Powell appeared to reverse earlier optimism about an ongoing “disinflationary process” during yesterday’s Senate testimony. Market-implied odds on a half percentage point move at the March meeting moves above 70-percent in the hours after the Fed chair’s appearance, and have barely subsided since. The two-year Treasury yield is holding above 5 percent for the first time since 2007, the dollar is trading higher, and most majors remain on the defensive. “The latest economic data have come in stronger than expected, which suggests that the...

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07 Mar 2023

Hawks in the Fed nest

• Hawkish Fed. Chair Powell pointed to rates rising even higher than previously thought, with the door to larger hikes still open.• Market repricing. US rate expectations have risen, supporting the USD. While the outlook for the RBA has been pared back following tweaks to its guidance.• AUD slump. The diverging RBA and Fed outlooks has weighed on the AUD. The shift in thinking can keep the AUD under pressure near-term. Market attention was on US Fed Chair Powell’s Congressional Testimony overnight, and he didn’t disappoint. In line with our thinking, which we have highlighted over the past few days,...

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07 Mar 2023

Dollar Jumps as Powell Warns Rate Hikes Could Accelerate

The dollar and Treasury yields are surging ahead of Senate testimony, in which Federal Reserve Chair Powell will call recent economic data “stronger than expected,” and warn “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes” – verbiage that suggests a half percentage point hike is on the table for the central bank’s March meeting. In comments released on the Fed’s website prior to Powell’s appearance, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest...

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07 Mar 2023

Pre-Powell Caution Fades

The dollar is back on the defensive, yields are slipping, and equity futures are climbing as market participants bet that risks associated with today’s Federal Reserve Congressional testimony are largely priced in. Commodity-linked currencies are up slightly in a modest reversal from yesterday’s China-related selloff, while safe havens like the yen and Swiss franc are seeing softer demand. The Reserve Bank of Australia raised its cash rate for a tenth consecutive time, but dropped a reference to further increases, hinting only that “further tightening” would be needed. Australian rates have climbed a cumulative 350 basis points since last May, and...

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