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9 Mar 2023

USD/CAD climbs above 1.3800 amid steady BoC policy and hawkish Fed bets

  • USD/CAD has jumped above 1.3800 as hawkish Fed bets have strengthened the risk-off mood.
  • The Canadian Dollar has been impacted by steady BoC policy and lower oil prices.
  • An upbeat US ADP Employment data indicates an extension in the inflationary pressures.

The USD/CAD pair has scaled above the round-level resistance of 1.3800 in the early Asian session. The Lonnie asset has been strengthened further by unchanged monetary policy by the Bank of Canada (BoC) and hawkish remarks from Federal Reserve (Fed) chair Jerome Powell in his testimony before Congress.

S&P500 futures have shown a modest recovery but the recovery move looks insufficient in considering a decent improvement in the risk appetite of the market participants. The 10-year US Treasury yields dropped below 4.0%.

The US Dollar Index (DXY) is demonstrating volatility contraction after some volatile moves inspired by better-than-anticipated United States Employment data reported by Automatic Data Processing (ADP) agency. The economic data landed at 242K, higher than the expectations of 200K and the former release of 119K. Also, the job openings data soared to 10.824 million vs. the consensus of 10.6K. A follow-up solid labor market data indicates that the US inflation is expected to be sticky further as upbeat demand for talent will be offset by higher wages offered.

Fed’s Powell reiterated on Wednesday that the “Fed is prepared to increase the pace of interest rate hikes” to help inflation return to the 2% target. This kept the US Dollar bulls at the driving seat.

On the Canadian Dollar front, as expected the BoC Governor Tiff Macklem announced an unchanged interest rate policy. A steady interest rate decision by the BoC was highly expected as BoC’s Macklem already announced a pause in the policy tightening spell in January’s monetary policy meeting. The central bank believes that the current monetary policy is restrictive enough to tame Canada’s sticky inflation.

Meanwhile, oil prices have trimmed further amid deepening demand worries as the Fed sounds extremely hawkish on the interest rate guidance. It is worth noting that Canada is a leading exporter of oil to the United States and lower oil prices will impact the Canadian Dollar.

 

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AUD/USD holds lower ground near multi-day low below 0.6600 ahead of China inflation

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