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The IMF will release its World Economic Outlook report in ten minutes.On April 14th, Investinglive analyst Adam Button stated that the US March overall and core PPI year-on-year and month-on-month rates were all significantly lower than market expectations. Given that market forecasts primarily revolved around the anticipated surge in energy prices, the focus is on where the discrepancy lies. While energy prices did indeed rise sharply, the increase was less than expected: refined oil products surged (gasoline +15.7%, diesel +42.0%, etc.), but natural gas plummeted by 51.7%, partially offsetting the overall impact. The services sector unexpectedly remained flat (0.0% month-on-month), and this sector, accounting for approximately 68% of the total, was the main reason for the weaker-than-expected data. One driving factor was declining trade margins, with retailers absorbing some energy costs rather than passing them on. Transportation prices rose by 1.3%, but with only 5% weighting, it was insufficient to offset the shortfall. Food prices fell by 0.3%, also dragging down the overall data. In short, market expectations over-focused on crude oil, underestimating three factors: the natural gas plunge, compressed trade margins, and slowing inflation in core services. Energy transmission did exist, but its magnitude was narrow, and the pricing power of other parts of the economy weakened.Bank of Japan Governor Kazuo Ueda: We will continue to closely monitor the impact of the Middle East conflict on the economic outlook and financial conditions.Bank of Japan Governor Kazuo Ueda: It should be noted that the possibility of a price increase mechanism may be strengthening compared to the past.Bank of Japan Governor Kazuo Ueda: If rising oil prices lead to an increase in long-term inflation expectations, then this will accelerate the rise in actual inflation.

USD/CAD declines to 1.3500 on firmer Oil prices, BoC concerns over US inflation, and Fed Minutes

Daniel Rogers

Apr 10, 2023 14:35

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The USD/CAD maintains losses close to 1.3500, shattering a four-day winning trend, as traders brace for key Easter Monday data/events on major bourses. However, the recent decline in the Loonie-U.S. dollar exchange rate may be due to the increase in the price of WTI petroleum oil, Canada's primary export. In contrast to the recent increase in ardent Fed forecasts, the Bank of Canada's (BoC) dovish bias poses a challenge to pair sellers.

 

After increasing for three consecutive weeks, WTI crude oil prices gain 0.61 percent intraday near $80.00. Recent increases in the price of black gold may be due to geopolitical concerns surrounding China and Taiwan. In addition to the supply cut by OPEC+ and the faltering US dollar, the energy benchmark is sustained by the supply cut by OPEC+ and the weakening US dollar.

 

However, the US Dollar Index (DXY) has fallen for three consecutive weeks and is under pressure near 102,000.

 

Fears of higher Fed rates versus inaction from the Bank of Canada (BoC) grew after the upbeat US Jobs report versus the lack of significant positives in the March Canadian jobs report.

 

As a result, the CME's FedWatch Tool indicates a 69% chance of a 0.25 basis point rate hike in May, up from 55% prior to the US employment report.

 

Canada's headline Net Change in Employment increased to 34.7K in March from 21.8K in February, compared to the market consensus of 12K, while the Unemployment Rate came in at 5% versus the analysts' estimate of 5.0%. During the specified month, the Participation Rate decreased to 65.6% from the expected and previous rate of 65.7%. In addition, the average hourly wage fell 5.2% year-over-year in March, down from 5.5% in February.

 

In contrast, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 236K in March, the lowest increase since January 2021 (considering revisions), compared to the expected 240K and the previous 330,000. Additionally, the unemployment rate fell from 3.6% to 3.5%, while the labor force participation rate rose from 62.6% to 62.6%. The annual wage inflation rate decreased from 4.6% to 4.2%, below market expectations of 4.3%.

 

Futures on US equities ended higher, but yields remain under pressure ahead of the crucial BoC monetary policy meeting, US inflation, and Fed Minutes. Given the dovish concerns from the Bank of Canada (BoC) and the likely hawkish comments in the FOMC Minutes, the USD/CAD may see additional gains, barring any unexpected developments.


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