– Hawkish Fed comments from Neel Kashkari sinks Loonie.
– More Fed-speak today but no data.
– USD dollar opens higher with CAD and JPY the worst performing currencies.
USDCAD: open 1.3747, overnight range 1.3721-1.3761, close 1.3728, WTI $77.44, Gold, $2311.03
The Canadian dollar got walloped yesterday on the heels of hawkish comments by Minneapolis Fed President (but non-FOMC voter) Neel Kashkari and it fell further overnight.
Mr Kashkari published an essay on the Minneapolis Federal Reserve website which outlined his views on the Fed’s current monetary policy and its implications going forward. If you were hoping he expected to be cutting rates, you will be disappointed. Mr Kashkari argues that FOMC has tightened monetary policy more aggressively compared to previous cycles and beyond the market’s understanding of what is considered neutral. Despite this significant tightening, the housing market has shown unusual resilience, suggesting that the current understanding of the neutral rate might be underestimated. His analysis implies that if the neutral rate is indeed higher than previously anticipated, current interest rates might not be as restrictive as they appear, which could lead to sustained higher interest rates than historically observed in the short term.
His essay didn’t do much for equities and led to the US 10-year Treasury yield rising from 4.42% to 4.48% overnight, while sparking widespread demand for US dollars.
The Canada/US 10-year yield spread widened to -85.2 bps due to the believe that although Fed rate cuts could be delayed, the BoC will still cut rates in June.
EURUSD shrugged off the US rates drama and traded in a 1.0734-1.0757 range. EURUSD got a bit of support after Sweden’s Riksbank cut rates to 3.75% sparking EURSEK demand.
GBPUSD traded negatively in a 1.2468-1.2522 band ahead of Thursday’s Bank of England monetary policy meeting. Rates are expected to be left unchanged but the statement could open the door to lower rates in June.
USDJPY rallied from 154.57 to 155.50 due to the higher US 10-year Treasury yield following Mr Kashkari’s comments. Japanese officials continue to warn of further intervention
AUDUSD traded in a 0.6564-0.6600 range, with prices trying to claw back losses after the RBA monetary policy update was on the dovish side. Policymakers hinted that the next rate move was likely to be lower.
There are no US or Canadian economic reports of note today.
