FX is being driven by diverging monetary policy paths in the US and Europe while swings in the equity market continue to prove unusual. The dollar’s safe-haven status has perhaps been dented by the fact that the banking turmoil has primarily been a US story. Oil-sensitive currencies continue to enjoy decent momentum as we see more upside risks to oil prices. The Canadian dollar is also benefiting from the general improvement in sentiment but lacks a domestic tightening story, so its rally may start to run out of steam sooner rather than later. Today’s calendar sees the third release of fourth-quarter GDP figures, plus speeches by the Fed's Thomas Barkin, Susan Collins and Neel Kashkari.
The CAD has been on a mini-run against the USD and continues to hold on to gains through the week. The Federal budget came and went without much impact on the CAD. More spending and more debt are the very basic takeaways. Look for the CAD to possibly target 1.3515 in the short term. For now the CAD is likely to be driven by broader external market themes instead of any internal domestic drivers. Observe the USD/CAD trends.
Preliminary March inflation readings in Spain and Germany will be closely watched today. The German figures will obviously draw greater interest, and consensus expectations are for a deceleration from 8.7% to 7.3% in the headline rate. With the European Central Bank explicitly data-dependent, this week’s inflation figures are set to be an important driver of the market’s rate expectations. There are currently two 25bp rate hikes fully priced in by September, and the bar for another hawkish repricing is set quite high. The EUR/USD rally took a break around 1.0840 and we could see it hover around those levels today, but we still favour a break above 1.0900 and ultimately a test of 1.1000 in the near term.
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